The economic cycle is one of the key concepts in the history of the development of economic relations. Social production is characterized by regular fluctuations, which are repeated after a certain period of time.
For the first time, H. Clarke, an English economist, drew attention to such economic fluctuations, saying that the intervals between economic crises are not at all random. The Russian researcher N.D. Kondratyev.
The theory of the economic cycle is based on the change of four successive phases: crisis - depression - recovery - peak.
The crisis is a violation of the balance of the economic system, which leads to a decrease in production and its halt. In market relations, this is expressed in a crisis of overproduction, as a result of which a sharp drop in prices is observed. An example of this phase is the crisis of 1929-1933, when US prices fell by more than 50%. The volume of production is decreasing, unemployment is growing, population incomes and, accordingly, solvent demand for goods are decreasing .
Depression is the period during which excess goods gradually diverge at reduced prices or even deteriorate. Sales are gradually reviving, and falling prices stop. A slight increase in production begins, but trade is still not fast enough. Capital is concentrated in banks, not finding application in production and trade. This leads to an increase in money supply and a decrease in the rate of loan interest. The economic cycle is entering a boom.
The recovery is characterized by the restoration of the pre-crisis volume of production, rising prices and profits of enterprises, wages of workers. Gradually, the level of production and employment return to precrisis levels, reaching their peak.
The peak is a full workload of production, the maximum possible employment, a high level of prices, wages and loan interest.
The economic cycle is a fairly broad concept. Many of its species stand out. Most often, the following four are used in theory.
Kitchin's short-term cycle (3-4 years) - is associated with fluctuations in gold reserves in the world and the laws of money circulation. Medium-term cycle (10-20 years) of Zhuglar (industrial) - associated with the processes of the credit sector, which affect investment processes; Kuznets (construction) - with periodic updates of various production facilities. The long-term (45-60 years) Kondratiev cycle - is associated with the use of innovations.
Economists have different definitions of the causes of cycle changes. There are three approaches to explaining this phenomenon.
The first is based on the fact that the economic cycle is explained by factors not related to the economic system itself. Mainly fluctuations in production are influenced by natural phenomena and political events. The second considers the cycle as an internal phenomenon of the economy. The main factor influencing the change in the state of the economy with this approach is the cyclical nature of the renewal of fixed capital involved in production. The decline and ups are affected by the exhaustion of investments, changes in the money supply, a decrease in the effect of animation, renewal of capital, etc. The third approach sees the reason for the fluctuations in the interaction of internal economic factors with the external environment. The latter are considered as primary, which provoke the onset of action of internal factors. The main external factor is the state.
Thus, the economic cycle is a special type of fluctuation of economic activity. The change of cycles leads to contractions and expansion of production, business activity, employment and other indicators. Cycles vary in intensity, duration, and other characteristics, but they all share the same phases.