Let's analyze the economic cycle, the concept of phase, causes and types of arising accommodations in economic life. All this will make it possible to qualitatively judge the processes taking place in a country, the world or an individual industry.
general information
In classical science, the economic cycle is divided into four phases:
- Revitalization and rise.
- Boom.
- Recession.
- Depression.
They are interconnected and flowing from one another. So, during a period of economic recovery, the foundation for excessive consumption is laid, which subsequently leads to a glut of the market and a reduction in the volume of work of enterprises and the dismissal of some employees. Therefore, in order to analyze in detail the concept of the economic cycle and its phase, all stages will be considered separately with an indication of their relationship.
Revitalization and rise
Capital is accumulating, created production is expanding up to the moment of work at its full capacity. At the same time, the level of employment rises to the maximum possible. This is accompanied by higher wages and prices. The first, as a rule, are ahead of the second. In the period of economic recovery, indicators are reached at the level of the pre-crisis period. As a rule, it is believed that the recovery phase is not characterized by growth of more than three percent of gross domestic product per year.
The reasons for classifying revival as recovery can be a set of facts such as:
- Gross domestic product growth is more than three percent per year.
- New enterprises are actively being created and put into operation.
- Wages are rising.
- Unemployment is falling.
- The level of investment is growing.
Here the effect of an avalanche arises. Production is expanding rapidly, which entails an increase in demand for loans. Interest rates are rising to the average rate of return. During the period of economic recovery, one can observe the highest level of economic activity in the country. It was at this time that the main accumulations of the population formed. In a period of economic recovery, the volume and amount of transactions at their real value are the highest.
Boom
When the greatest employment is achieved during the period of economic revival, the industry operates at maximum capacity, then the growth of business activity stops. This is the next phase of the boom, in which the highest parameters of society are observed. The peculiarity of this stage is that imbalances are being repaired, which so far have been canceled out due to previously accumulated reserves. The emergence of the problem of cyclical development of the economy is closely related to the mechanism of self-regulation. Crisis is only a structural factor in updating the economy. If the Earth's population were stable, with the same needs, then in time we would enter the phase of humanity, in which such recessions and growths would not be recorded.
The negative trends are also reinforced by the economic sector, which has not yet figured out what the situation has come. Initially, entrepreneurial entities try to solve problems by changing prices, ultimately causing, as a rule, only inflation.
Recession
During a period of economic recovery, people may feel that their life is getting better. But to use all the features immediately is not recommended because of the subsequent crisis. So, there is a process of capital accumulation, excess capacities arise, stocks are growing, capital turnover is slowing down. A logical result emerges from this - the incomes of enterprises and, accordingly, their employees and owners are falling. This, in turn, leads to a decrease in the aggregate demand for investments and all the services and goods that result from them. Ultimately, there is a drop in growth in gross national product.
As a result, a large number of negative trends arise: the stock price drops, unemployment rises, and all this is accompanied by a decrease in the general standard of living. Moreover, this often develops to such forms that the GDP growth is not only decreasing, but the indicator itself is becoming smaller. During the recession, production is constantly decreasing and unemployment is rising. At the same time, incomes are falling. Through the action of the ratchet effect, prices do not immediately fall under the trend. Their reduction occurs only in the case of exacerbation and duration of the situation, which may be the phase of depression. But there are relative advantages. Thus, the means of production and labor become cheaper, which creates the prerequisites for new investments in the economy (companies, technologies, equipment and personnel).
Depression
This is the bottom point of any business cycle. Characteristic of depression is the cessation of the decline process. But you can still see a high level of unemployment. True, if there is no significant inflation, the rate of loan interest decreases. This, in turn, stimulates the demand for money capital, creating the prerequisites for its accumulation.
