Cyclical nature of the market economy

Following one after the other ups and downs in economic activity over a number of years called the business cycle.

Cycles of nature is still one of the most controversial and neglected problems. Economists have paid attention to her long ago, in the early 19th century. Adam Smith, David Ricardo, Alfred Marshall saw the cycle as a private, a fleeting phenomenon. Marx was the first economists began to pay close attention to this issue.

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Fig. 22. Economic cycle

Economic cycles may differ in intensity (frequency), duration, effects, the possibility of it, but they all have the same phase.

Take a closer look:

1. - "Recession" or compression, in which production and employment are reduced, and the prices are not reduced.

2. - "Stagnation" or depression, when the fall in output and employment reach their lowest level, which leads to a decrease in profits, growth in bank debts, bankruptcy. Often this phase of the cycle is called the crisis.

3. - "Revival." This is the period when enterprises are adapting to new market conditions, increase the release of goods is carried out new industrial construction.

4. - "Peak",rise, sometimes referred to as an economic "boom", it occurs when the economy is in full employment and production at full capacity.

It should be noted that it is the frequency of the repetition of the crisis makes reproduction cyclical.

What are the causes of business cycles? Here we can distinguish two groups:

Internal - technical innovations (renewal of fixed capital), the accumulation of money, that is related to the internal mechanism of the economic system, which gives impetus to economic self-replicating cycle, when the peak followed by decline and recession - peak

External - the impact of the forces of nature (sun spots, natural disasters, crop failures) and political factors (wars, strikes).

Whatever the cause of cyclical fluctuations, the determining factor of the economic cycle is the update fixed capital investment made through a refund on disposals and used for storage (or expansion) of production

The economic crisis of overproduction has two sides. One side - devastating. It is associated with the removal of the existing abnormal proportions in the economy, when the production of goods is much higher than consumer demand. Often, large surpluses of goods barbarously murdered.

The other side - improving. It is inevitable, because during the Depression falling prices makes production unprofitable: it does not give the usual, the average profit.