The economy of all countries of the world is developing unevenly. It is undergoing constant changes, alternating economic cycles and crises. If you depict them in a graph, you can see that the processes occurring at the macroeconomic level can be displayed in the form of wave-like segments. Consider what is the economic cycle and its phases.
An economic cycle is the period between two higher or lower points on a chart. The following phases of the economic cycle exist: crisis, depression, recovery and recovery.
- The crisis is characterized by the following economic situation. A significantly larger number of bankruptcies of firms occur. They cannot sell goods accumulated in warehouses, therefore the liquidity of enterprises drops sharply, and hence solvency. There is no way to pay bills with suppliers, employees, tax authorities, etc. As a result, the bankruptcy of each enterprise affects the entire environment. Suppliers do not receive payment for shipped materials, which increases their costs and can also lead to bankruptcy. Workers do not receive their wages, which significantly reduces the quality of their lives. They cannot acquire new products; trading enterprises suffer. In the event of bankruptcy, all employees of the enterprise are reduced, resulting in an increase in unemployment. Other negative manifestations in the country's economy: massive defaults on loans, mortgages, a significant drop in the price of securities, the liquidation of many credit organizations. Thus, during the crisis, absolutely everyone suffers, the negative economic situation affects any area of activity.
- Depression is the phase following a crisis. At this point, the decline in production is halted. Product prices reach their minimum. Consumers are gradually buying up stocks stored in the company's warehouses. Thus, money capital appears again. During a depression, there is a minimum on such indicators as the bank interest rate, the level of trade margins , etc. Unemployment reaches its maximum value. A striking example of this cycle can be the depression of the 30s of the 20th century, when in America millions of people were left without work, tens of thousands of enterprises went bankrupt, including very large ones. People took up any work to feed their family and pay mortgages, as they could be on the street at any time.
- Revival - this is where the negative phases of the business cycle end. Now production is once again gaining momentum. Warehouses are filled with goods. This is necessary to ensure uninterrupted supply of products on the market. As production has revived, new jobs appear, which means that unemployment is falling . The quality of life rises significantly, and prices begin to rise again. There is an increase in demand for goods of different price categories. People are increasingly starting to prefer luxury products. New enterprises appear, investors are very willing to invest in gold, securities, etc. There is a real flowering of the country's economy.
- Climb. These are all positive phases of the business cycle. Enterprises produce products in the volumes that were in the pre-crisis period. Unemployment reaches a minimum. The quality of life of the majority of the population is high, which makes it possible for trade enterprises to make a large margin on their goods. And while there is no drop in demand for their products.
We examined the four main phases of the business cycle. They are constantly repeated in the economy of each developing or developed country.