Реферат: The Business Cycles as a Form of Economic Development

- Self renewal;

- Continuity;

- Wave-looking dynamics of macroeconomics factors.

The economic cycles depend on output. The output is expressed by the quantity of commodities and services, produced by the economy of the exact country.

Stages of the Business Cycles

The full business cycles have four stages it’s gone through. They are: recession, through, recovery and peak (or “boom”).

Recession

At the moment of recession there is a decline in economic growth, and then, as a rule, direct reduction in output.These phenomena are associated with the overproduction of goods. At this time, the amount of unsold goods dramatically increases.We can see massive bankruptcy (ruin), industrial and commercial enterprises which can not sell goods that are accumulated. Because of the suspension of production, the unemployment is rapidly growing, wages are declining.The stock market is crushed, we observe falling stock prices.All entrepreneurs are in dire need of money to pay debts quickly formed and therefore the norm of banks-sky percentage 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 phase – trough (depression).The declining of production suspends and the prices are getting lower. Stocks of goods are gradually decreasing.Because of the small demand, mass of free capital increases, the bank interest rate reduces to a minimum level.Industry and employment, having got to the lowest level, slowly and gradually begin to grow.

During the depression the supply of goods stops to dominate on demand, that’s why an economic equilibrium appears between them. At the same time conditions to end the crisis are being naturally created.

Speaking of through, let’s get back to the Great Depression. For instance, stock prices fell from $89 to 15$ billion. An unemployment rate was 25%. 100 000 failed.

Recovery

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

The economic conditions which we have described in depression phase do not remain as such for ever. After sometime revival or recovery sets in under the influence of a variety of factors. The revival phase develops when the accumulated stock of commodities with the businessmen are exhausted. The cost under the impact prolonged depression begins to fall. The price which have reached its lowest level stop falling further.

There is then complete harmony between costs and price relationship. When profits begin to reappear, the businessmen are induced to invest their hoarded money in some enterprise. In order to steal a march over other industrialists, they start repairs, renewal and replacements of their capital equipments and stocks. The capital goods industries resume activities. There is gradual reemployment of labor.

The money incomes begin to increase and the effective demand is revived. The government also tries to break the spell of depression by starting construction or expanding some public works with a view to give more employment. The commercial banks which have accumulated large reserve offer credit on favorable terms. The marginal efficiency of capital begins to rise and investment opportunitiesbrighten up. The consumers start buying commodities to avoid the rise. Due to increase in demand for commodities, investment in various industries is stimulated and thus the revival takes place.

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

Peak

Recovery ends with a "boom" or peak of cycle when the economy is operating at maximum capacity, there is full employment, investment and spending of customers are very high, we observe an expansion of production, wages and profits are rising. Now because of many customers who are willing to buy a lot of commodities, prices trend to rise. Entrepreneurs feel limitation of recourses and an output level stops going up. Then the economy is "overheated", and it sinks into a new crisis.