Many processes in human life occur cyclically. The economy is no exception. The market environment is constantly changing under the influence of various factors. Economic growth is replaced by stagnation and crisis. Then the process repeats again. Scientists distinguish business cycles by considering their stages, causes and consequences. This allows you to harmonize the market situation. What constitutes a business economic cycle will be discussed below.
Cycling concept
The theory of business cycles was studied by many famous economists. Over the past two thousand years, a variety of assumptions have been put forward about the causes of their occurrence. The first research in this direction was carried out by scientists of Ancient Greece. They used generalization methods to track certain processes. The accumulated knowledge allowed them to determine that development is cyclical. It is observed not only in the economy, but also in nature, politics, the social sphere and others.
Previously, the cycle was represented as a circle. In this case, the processes, according to ancient scientists, are identical. Therefore, they believed that the same phases always recur. However, over time it was confirmed that this is not so. Development takes place in a spiral.
The theory of political, business cycles was considered by ancient scholars from different angles of view. As a result, they concluded that the process has a wave-like motion. Crises and rises succeed each other sequentially. The observations of ancient philosophers for the first time began to be considered seriously only at the beginning of the last century. The reason for this was the upheaval in society, ideals and science. This led scientists to look for reasons for such phenomena. As a result, they considered the cyclic mechanism.
As a result, researchers came to the conclusion that the world is developing unevenly. This was the beginning of a new worldview.
Modern approaches to the study of theory
The political and business cycles are examined in depth by modern scholars. These questions never lose their relevance. This is necessary for strategic and ongoing planning. If a company, organization or the whole state can predict the features of the further development of its environment, this allows you to make the right decisions, the most profitable from an economic point of view. This allows you to win in the competition, to occupy the most favorable positions in the market. Knowing how it will develop, a company can reduce negative trends and get the maximum benefit in this situation.
The concept of business cycles is the property of the aggregate modern science. Scientists and now have not come to a consensus. They have many points of view on these issues. No theory can be called ideal. Most researchers agree that business cycles are continuous and consistent. There are certain stages to this process. With certain political interventions, some of them may practically fall out of the general process. They pass in a short period of time, remaining invisible.
Today, cyclic processes are recognized by almost all scientists. Crises, rises replace each other. They do not happen by chance. But the essence of the cycle is causing serious discussion among researchers. The concepts that try to explain such concepts are diverse. Research in this direction does not stop to this day.
Definition
It is worth considering in more detail the essence of economic cycles. The business cycle has several salient features. This is periodically changing activity in one or several sectors of the economy. For a period with a certain duration, several phases change. These are falls and ups, which are observed not only in a separate market, but also within the framework of a whole state or the world. Fluctuations cannot be characterized by regularity. This does not allow to predict the market situation for sure. For this reason, the concept of cycles is considered conditionally in the modern economy.
The duration of each stage is different. Their nature is also heterogeneous. But common features can still be distinguished from everyone. Real business cycles have the following characteristics:
- In all states with a market economy, fluctuations in the reproduction process are determined.
- Crises cannot be avoided. They have negative consequences for the economy. But they are also needed for further development.
- The same stages are highlighted in each business economic or political cycle. Each phase proceeds sequentially.
- The reasons that cause fluctuations are many. They have different features.
- The global economy has a significant impact on the nature of the cyclical nature of individual markets. If a crisis occurs in one country, it will affect the economic situation of other countries.
Reasons for cyclical economy
Business cycles arise for various reasons. Knowing what causes the fluctuations, you can make a prediction. The main factors that provoke cyclic fluctuations are the following facts:
- Shock economic impulses. They affect the market environment, changing the course of its development. This, for example, may be innovative discoveries, the development of new technologies. It makes a breakthrough. Another shocking impact on the economy is war.
- Working capital investment. With the wrong approach, materials and raw materials begin to accumulate in the workplace. This leads to the accumulation of stocks, goods, capital is used irrationally. Turnover is slowing, involving more and more resources. Production suffers from this, since capital accumulates in goods and stocks.
- The prices of raw materials used during production vary. Because of this, it may be deficient.
- Fluctuations of a seasonal nature. For example, in agriculture a similar situation is considered normal. Such fluctuations are expected.
- Actions of trade union committees. Workers in some situations refuse to fulfill their duties, as they assert their rights. At the same time, trade unions require raising labor standards, wages, and guarantees for workers.
For this reason, development takes place in waves. Oscillations occur, which are characterized by different amplitudes.
Graphic image
There are certain phases of the business cycle. They are depicted using the graphical method, plotting. It reflects the level of GDP, which is a wave-like line. On the abscissa axis, time is reflected, and on the ordinate axis is an indicator of GDP. If we consider the curve in scale, it gradually rises. It also proves the spiraling development of the economy.
There are 4 phases of the business cycle. It:
- Climb.
- Peak.
- Recession.
- Bottom.
Other concepts do not apply to business cycle phases. When the rise comes, the curve passes the stage of the bottom. This phase lasts until the peak point. At this time, the pace of production begins to increase. This entails an increase in the wages of workers. The staff begins to expand. As the number of unemployed decreases, more money appears in the population. Purchasing power is increasing along with demand for products.
At the boom stage, inflation is gradually decreasing. As the population has money, production is increasing. Companies have funds for the development of innovative approaches and technologies. At the boom stage, such projects pay off. This is a period of development. Enterprises receive loans from banks, investors begin to invest in production.
Peak and decline
Considering the phases of the business cycle, it should be noted such a stage as a peak. This is the highest point. That is, in it the economy reaches its climax within this cycle. Business activity reaches the highest level. At this time, the lowest unemployment rate is observed. She may be absent altogether. Production work at the highest level.
At the peak of business activity, inflation is gradually increasing. This process is launched due to the saturation of the market with goods. Competition is gradually intensifying. This forces companies to develop more stringent measures to promote their products. This requires long-term loans. It is becoming increasingly difficult to repay them. Due to this, financial indicators begin to decline. Therefore, banks and investors provide their capital only to the most promising companies. Risks are starting to grow. Some companies do not stand up to increasing competition. They begin to withdraw from the struggle, eliminating some production processes.
At this point, the recession phase begins. Some workers are subject to reduction. This leads to a decrease in purchasing power. Inflation is gradually increasing, growing at a faster pace.
There are many goods, but the demand for them is declining. Only the strongest organizations can survive in such conditions. Many organizations are unable to pay their debts. They are being eliminated, which entails new waves of staff reductions. Product prices are falling. The volume of production is declining.
Bottom
Any business cycle sooner or later reaches its lowest point. It is called the bottom. The unemployment rate at this time is the largest. Surplus goods are reduced. By this time, they will either be sold at reduced prices or liquidated. Some products deteriorate and require disposal. Warehouses at the factory are empty.
At the lowest point of the curve, prices stop falling. Further, the movement turns up. But trade at this point in the cycle is still at its very lowest level. Capital returns back to investors and lenders. Debt levels are falling, companies can only rely on their own resources.
For this reason, the level of risk is minimized. Those organizations that have continued to function become attractive to investors. Interest on loans is reduced, which opens up new prospects for production. Companies receive loans, hire workers, the population begins to increase the amount of money.
At the bottom, business activity does not last long. However, without proper management, it can drag on for years. Such cases have occurred in history.
Common paradigms
There are different business cycle models. They interpret the emergence of fluctuations in market activity from different angles. The most common ones are:
- Model of the accelerator multiplier. This approach assumes that cycles reproduce themselves. If the wobble occurs once, it will continue, like a swing of a swing. This model is not suitable for explaining real cycles.
- Impulse propagation mechanism. Accidental shock, tremors rock the economy. They affect supply and demand, can cause both growth and decline in production.
- Monetary concept. This model explains the occurrence of cyclicality not by changes in supply and demand, but by some processes in the money sector. Banks offer to borrow money. This is a money offer. Investments are increasing, which affects aggregate demand.
Evolutionary model example
One of the new models that explains business cycle fluctuations is evolutionary theory. It needs to be considered by example. Thus, proponents of this theory argue that cyclic processes are caused by a change in the generation of industries. It is easy to imagine the example of companies that produce communications.
So, in the last century, companies that manufactured landline phones actively developed. At the time of their greatest development, a peak was observed in this industry, which affected the economy as a whole. Over time, the market was saturated with these products. Next, wireless mobile phones were invented. Landline companies have begun to shut down or have changed their activities.
The new generation of mobile phone companies has triggered an economic boom.
