Ministry of Education and Science of Ukraine

National Technical University of Ukraine

& # 8220 ; Kiev Polytechnic Institute & # 8221 ;

Faculty of Management and Marketing

Report on Macroeconomicss

& # 171 ; The Business Cycles as a Form of Economic Development & # 187 ;

Written by

The pupil of UZ-92

Osipov Dmitry

Checked by

Ereshko Yu. A.

Kiev-2010

Contentss

busines economic rhythm

Introduction

Definition of Cyclicity

Phases of the Business Cycles

Recession

Through

Recovery

Extremum

Causes of Economic Cycles

Types and Continuity of the Business Cycles

Short Cycles

In-between Term Cycles

Long Cycles ( The Kondratiev moving ridge )

Stabilizing policy of the State

The Great Depression

The List of Used Literature

Introduction

The modern society strives to continuously better the degree of life and life conditions, which can merely supply sustainable economic growth.However, long-run economic growing is non even, but is invariably being interrupted by periods of the economic instability.The ups and downs along the degree of end product, following one another, are normally called the concern or economic rhythms.

We can run into rhythms, including economic 1s, about everywhere.Our life, the calling develops cyclically – we ever feel enlargements, recessions. The subject is relevant because we all have to understand that one time we hit the choice, it & # 8217 ; s traveling to be followed by the recession.

Definition of Cyclicity

The economic system has the ability to develop cyclically: it has its ain crises, recoveries, “ roars ” . People ever strive to make the extremum, the “ roar ” of their public assistance ; the authorities – to the extremum of economic development of the state.But the economic system can & # 8217 ; t remain at the extremum of its development everlastingly, it & # 8217 ; s ever followed by the recession, crisis.Under these two words we all understand something bad, something we want rapidly to acquire rid of.Crises have a negative impact on about everything, so we try to avoid it.But even in the developed states like USA, UK, France, Germany and other states of Western Europe we don & # 8217 ; t see the successful experience of avoiding them.

Scientists have non determined the exact causes of the rhythms for several centuries. Presently, there are lone theories of economic rhythms. The other economic experts agree with them or offer trade name new thoughts on the job.However, this inquiry remains unfastened to this twenty-four hours.

Economic rhythm ( or the concern rhythm ) & # 8211 ; is the periodic but irregular up-and-down motions in economic activity, measured by fluctuations inreal GDP and other macroeconomic variables.

The chief features of concern rhythms:

– Self reclamation ;

– Continuity ;

– Wave-looking kineticss of macroeconomics factors.

The economic rhythms depend on end product. The end product is expressed by the measure of trade goods and services, produced by the economic system of the exact state.

Phases of the Business Cycles

The full concern rhythms have four phases it & # 8217 ; s gone through. They are: recession, through, recovery and extremum ( or & # 8220 ; roar & # 8221 ; ) .

Recession

At the minute of recession there is a diminution in economic growing, and so, as a regulation, direct decrease in output.These phenomena are associated with the overrun of goods. At this clip, the sum of unsold goods dramatically increases.We can see monolithic bankruptcy ( ruin ) , industrial and commercial endeavors which can non sell goods that are accumulated. Because of the suspension of production, the unemployment is quickly turning, rewards are declining.The stock market is crushed, we observe falling stock prices.All enterprisers are in desperate demand of money to pay debts rapidly formed and hence the norm of banks-sky per centum will increase significantly.

Here are the longest recessions of the last century:

1929-33: 43 months

1910-12: 24 months

1913-14: 23 months

1920-21: 18 months

1973-75: 16 months

1980-81: 16 months

As we can see the longest recession happened during the Great Depression ( 1929-33 ) . It lasted 43 months.

Trough

Following the recession here comes another stage & # 8211 ; trough ( depression ) .The worsening of production suspends and the monetary values are acquiring lower. Stockss of goods are bit by bit decreasing.Because of the little demand, mass of free capital additions, the bank involvement rate reduces to a minimal level.Industry and employment, holding got to the lowest degree, easy and bit by bit get down to turn.

During the depression the supply of goods Michigans to rule on demand, that & # 8217 ; s why an economic equilibrium appears between them. At the same clip conditions to stop the crisis are being of course created.

Speaking of through, allow & # 8217 ; s acquire back to the Great Depression. For case, stock monetary values fell from $ 89 to 15 $ billion. An unemployment rate was 25 % . 100 000 failed.

Recovery

The phase of recovery is the most pleasant stage of any rhythm.

The economic conditions which we have described in depression stage do non stay as such for of all time. After erstwhile resurgence or recovery sets in under the influence of a assortment of factors. The revival stage develops when the accrued stock of trade goods with the business communities are exhausted. The cost under the impact prolonged depression begins to fall. The monetary value which have reached its lowest degree halt falling farther.

There is so complete harmoniousness between costs and monetary value relationship. When net incomes begin to re-emerge, the business communities are induced to put their hoarded money in some endeavor. In order to steal a March over other industrialists, they start fixs, reclamation and replacings of their capital equipments and stocks. The capital goods industries resume activities. There is gradual reemployment of labour.

The money incomes begin to increase and the effectual demand is revived. The authorities besides tries to interrupt the enchantment of depression by get downing building or spread outing some public plants with a position to give more employment. The commercial Bankss which have accumulated big modesty offer recognition on favourable footings. The fringy efficiency of capital Begins to lift and investing opportunitiesbrighten up. The consumers start purchasing trade goods to avoid the rise. Due to increase in demand for trade goods, investing in assorted industries is stimulated and therefore the resurgence takes topographic point.

In the Great Depression recovery existent GDP raised from $ 580 billion to $ 1300 billion.

Extremum

Recovery ends with a “ roar ” or top out of rhythm when the economic system is runing at maximal capacity, there is full employment, investing and disbursement of clients are really high, we observe an enlargement of production, rewards and net incomes are lifting. Now because of many clients who are willing to purchase a batch of trade goods, monetary values tendency to lift. Entrepreneurs feel restriction of resorts and an end product degree Michigans traveling up. Then the economic system is “ overheated ” , and it sinks into a new crisis.

The rhythm is completed. And here comes a new one.

Of class, the manner how concern rhythms go depends on each state of affairs of different states. In some of them recessions take no more so a twelvemonth, but others stay in that stage for 5-10 old ages. It besides depends on what caused the recession.

Causes of the Business Cycles

A batch of economic experts have conducted researches on what causes the concern rhythms to take topographic point. Even though we don & # 8217 ; Ts have an existent reply to that inquiry. There are about 200 constructs that will depict economic crisis and their periodicity. All of those constructs are divided into two groups.

At foremost, the nature of economic rhythms is explained by the factors non

holding anything in common with economic system. They are: political events, psychological jobs, solar activity rhythms, wars, revolutions, the powerful discoveries in techniques and engineering.

In peculiar. One Englishman explains it through the solar activity. An American, G. Moor, was speaking about Venus gesture rythm.

Second, the rhythm is considered as an internal phenomenon, covering with economics.Internal factors can do a recession, and the rise in economic activity through certain periods of time.One of the important factors is the periodicity of basic capital.In specific, the beginning of economic roar, accompanied by a crisp addition in demand for machinery and equipment, seemingly proposing that it repeated over a period of clip when this technique is physically and mentally worn out.

So, by and large there are two types of causes. They are internal and external cause.

Internal causes:

– political and other events ;

– new land finds ;

– clime conditions ;

External causes:

– unstable consumer disbursement ;

– unstable investing rate ;

– resorts monetary value alterations.

Types and Continuity of the Business Cycles

Short concern rhythm ( Kitchin rhythm )

This rhythm is believed to be accounted for by clip slowdowns in information motions impacting the determination devising of commercial houses. Firms react to the betterment of commercial state of affairs through the addition in end product through the full employment of the extent fixed capital assets. As a consequence, within a certain period of clip the market gets & # 8216 ; flooded & # 8217 ; with trade goods whose measure becomes bit by bit inordinate. The demand declines, monetary values bead, the produced trade goods get accumulated in stock lists, which informs enterprisers of the necessity to cut down end product. However, this procedure takes some clip. It takes some clip for the information that the supply exceeds significantly the demand to acquire to the business communities. Further it takes entrepreneurs some clip to look into this information and to do the determination to cut down production, some clip is besides necessary to happen this determination ( these are the clip lags that bring forth the Kitchin rhythms ) . Another relevant clip slowdown is the slowdown between the materialisation of the above mentioned determination ( doing the capital assets to work good below the degree of their full employment ) and the lessening of the inordinate sums of trade goods accumulated in stock lists. Yet, after this lessening takes place one can detect the conditions for a new stage of growing of demand, monetary values, end product, etc.

Middle-term rhythms

Juglar was one of the first to develop an economic theory of concern rhythms. He identified the 7-11 twelvemonth fixed investing rhythm that is now associated with his name. Within the Juglar rhythm one can detect oscillations of investings into fixed capital and non merely alterations in the degree of employment of the fixed capital ( and several alterations in stock lists ) , as is observed with regard to Kitchin rhythms. The recent research using spectral analysis has confirmed the presence of Juglar rhythms in the universe GDP dynamics up to the present clip.

Long Cycles ( The Kondratiev moving ridge )

The rhythm is purportedly more seeable in international production informations than in single national economic systems. It affects all the sectors of an economic system, and concerns chiefly end product instead than monetary values. Harmonizing to Kondratieff, the ascendent stage is characterized by an addition in monetary values and low involvement rates, while the other stage consists of a lessening in monetary values and high involvement rates.

Kondratieff identified three stages in the rhythm: enlargement, stagnancy, recession. More common today is the division into four periods with a turning point ( prostration ) between the first and 2nd stages.

A 4th rhythm may hold approximately coincided with the Cold War: beginning in 1949, turning with the economic extremum of the mid-1960s and the Vietnam War escalation, hitting a trough in 1982 amidst turning anticipations in the United States of world-wide Soviet domination and stoping with the autumn of the Berlin Wall in 1989. The current rhythm most likely peaked in 1999 with a possible & # 8220 ; winter & # 8221 ; stage beginning in late 2008. The Austrian-school economic experts point out that utmost monetary value rising prices in the absence of economic growing is a signifier of capital devastation, leting either stagflation or deflation to stand for a recession or depression stage of the Kondratieff theory.

Stabilizing policy of the State

The chief end of the stabilizing policy is to cut down the moving ridge hesitancy. There are two types of policies like this.

The Policy of containment.

This is an activity to cut down the demand. Government uses it at the phase of extremum. At this minute the demand is turning that & # 8217 ; s why enterprisers are endeavoring to lift the monetary values and expand the production. And this causes the rising prices potency. At this point the economic system needs to be & # 8220 ; cooled & # 8221 ; . Apparently, the authorities wants to raise revenue enhancements, cut down province budget disbursements, to raise involvement rates.

This policy is good to contend against rising prices, but it besides causes a job of unemployment.

The Policy of Expansion

This is exact opposite policy – it & # 8217 ; s aimed to spread out the demand. This is relevant when the state is in a phase of through. Stimulating disbursements, authorities attempts to do the production flourish. They want to raise the end product degree.

Main instruments are: decreasing involvement rate, lifting rewards, exciting investings.

The Policy of Expansion creates conditions for economic growing and lowers the unemployment rate but at the same clip it threats by lifting monetary values which can take to rising prices.

The Great Depression

Historians most frequently attribute the start of the Great Depression to the sudden and entire prostration of US stock market monetary values on October 29, 1929, known as Black Tuesday. However, some difference this decision, and see the stock clang as a symptom, instead than a cause of the Great Depression. Even after the Wall Street Crash of 1929, optimism persisted for some clip ; John D. Rockefeller said that “ These are yearss when many are discouraged. In the 93 old ages of my life, depressions have come and gone. Prosperity has ever returned and will once more. ” The stock market turned upward in early 1930, returning to early 1929 degrees by April, though still about 30 % below the extremum of September 1929. Together, authorities and concern really spent more in the first half of 1930 than in the corresponding period of the old twelvemonth. But consumers, many of whom had suffered terrible losingss in the stock market the old twelvemonth, cut back their outgos by 10 per centum, and a terrible drouth ravaged the agricultural heartland of the USA beginning in the summer of 1930.

By mid-1930, involvement rates had dropped to low degrees, but expected deflationand the reluctance of people to add new debt by borrowing, meant that consumer disbursement and investing were depressed. In May 1930, car gross revenues had declined to below the degrees of 1928. Monetary values in general began to worsen, but rewards held steady in 1930 ; but so a deflationary started in 1931. Conditionss were worse in farming countries, where trade good monetary values plunged, and in excavation and logging countries, where unemployment was high and there were few other occupations. The diminution in the US economic system was the factor that pulled down most other states at first, so internal failings or strengths in each state made conditions worse or better. Frantic efforts to shore up the economic systems of single states through protectionist policies, such as the 1930 U.S. Smoot & # 8211 ; Hawley Tariff Act and relatiative duties in other states, exacerbated the prostration in planetary trade. By late in 1930, a steady diminution set in which reached underside by March 1933.

US Unemployment rate

The List of Used Literature

1. & # 1055 ; . & # 1042 ; . & # 1050 ; & # 1088 ; & # 1091 ; & # 1096 ; , & # 1057 ; . & # 1054 ; . & # 1058 ; & # 1091 ; & # 1083 ; & # 1100 ; & # 1095 ; & # 1080 ; & # 1085 ; & # 1089 ; & # 1082 ; & # 1072 ; & # 1103 ; “ & # 1052 ; & # 1072 ; & # 1082 ; & # 1088 ; & # 1086 ; & # 1101 ; & # 1082 ; & # 1086 ; & # 1085 ; & # 1086 ; & # 1084 ; & # 1080 ; & # 1082 ; & # 1072 ; ”

2. Tim Taylor & # 8220 ; Principles of Macroeconomics & # 8221 ;

3. Kitchin, Joseph “ Cycles and Trends in Economic Factors ” , 1923

4. hypertext transfer protocol: //www.english.illinois.edu/maps/depression/overview.htm