Ministry of Education and Science of Ukraine

National Technical University of Ukraine

“Kiev Polytechnic Institute”

Faculty of Management and Marketing

Report on Macroeconomics

«The Business Cycles as a Form of Economic Development»

Written by

The student of UZ-92

Osipov Dmitry

Checked by

Ereshko Yu. A.

Kiev-2010

Contents

busines economic cycle

Introduction

Definition of Cyclicity

Stages of the Business Cycles

Recession

Through

Recovery

Peak

Causes of Economic Cycles

Types and Continuity of the Business Cycles

Short Cycles

Middle Term Cycles

Long Cycles (The Kondratiev wave)

Stabilizing policy of the State

The Great Depression

The List of Used Literature

Introduction

The modern society strives to continuously improve the level of life and living conditions, which can only provide sustainable economic growth. However, long-term economic growth is not even, but is constantly being interrupted by periods of the economic instability. The ups and downs along the level of output, following one another, are commonly called the business or economic cycles.

We can meet cycles, including economic ones, almost everywhere. Our life, the career develops cyclically - we always feel expansions, recessions. The topic is relevant because we all have to understand that once we hit the pick, it’s going to be followed by the recession.

Definition of Cyclicity

The economy has the ability to develop cyclically: it has its own crises, recoveries, "booms". People always strive to reach the peak, the "boom" of their welfare; the government - to the peak of economic development of the state. But the economy can’t stay at the peak of its development forever, it’s always followed by the recession, crisis. Under these two words we all understand something bad, something we want quickly to get rid of. Crises have a negative impact on almost everything, so we try to avoid it. But even in the developed countries like USA, UK, France, Germany and other countries of Western Europe we don’t see the successful experience of avoiding them.

Scientists have not determined the exact causes of the cycles for several centuries. Currently, there are only theories of economic cycles. The other economists agree with them or offer brand new ideas on the problem .However, this question remains open to this day.

Economic cycle (or the business cycle) – is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables.

The main characteristics of business cycles:

-  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. ............