Macroeconomic instability

Macroeconomic instability

Macroeconomic stability is more likelychance, than regularity. Practice shows that there is no balance in the economy. After the period of prosperity and development, a period of recession is inevitably followed, accompanied by unemployment. And economic cycles and their types differ in time intervals and other signs. So, in duration they are short, medium and long.

Short cycles were defined by Joseph Kitchin, an English economist. He associated them with fluctuations in gold reserves. Periodicity, which set Kitchin, is forty months.

Wesley Mitchell, the founder of econometrics, believed that the reason for the short cycles lies in the monetary turnover, and agreed with the previous periodicity.

In fact, these cycles are associated with a lack of equilibrium in the consumption market. Changes in the credit sphere are their cause, and therefore they are manifested in the form of credit crises.

In the second half of the 19th century, Clement Zhuglyar,French economist, investigated the average cycles. Their cause, he also saw in the sphere of credit. Clement Zhuglyar determined the periodicity of average cycles in eight to ten years.

To the same type of cycles are also construction cycles, identified by Simon Kuznets. He associated them with periodic (once every fifteen or twenty years) renovation of housing.

Long (or large) cycles existDue to changes in infrastructure, energy sources and key technologies. Otherwise, these cycles are also called the Kondratiev cycles, named after the scientist from Russia - Nikolai Kondratiev. He studied the dynamics of coal, steel, tin production, as well as the average level of wages, prices, foreign trade turnover and other indicators in the United States and some Western European countries in 140 years (from the last two decades of the 18th century to the twenties of the 20th century). Kondratiev conducted econometric studies and determined that long cycles last 54-55 years, with an ascending and descending phase.

The downward phase, when the main technologies and technological structures change, lasts from 20 to 25 years.

The rising phase, when the society is booming economy, technology and science, lasts from 25 to 30 years.

There is no equilibrium in the economy for manyreasons. First, macroeconomic instability largely depends on such a factor as the technical equipment of production. Frequent changes provoke short periods of recession and recovery, and those that are produced less often (for example, the construction of new bridges and other structures) make these periods longer.

But macroeconomic instabilityis conditioned not only by this factor. To the problem of periodicity of such fluctuations in the economy, none of the economists of the 19th and 20th centuries remained indifferent. Trying to understand the reasons for this phenomenon, they created many different theories. The main ones explain the instability of the economy as follows.

1. According to the first theory, cyclicity is generated by the effect of the accelerator and multiplier effect.

2. Supporters of the theory of the political business cycle believe that macroeconomic instability arises as a consequence of the actions of politicians in the sphere of money, budget, loans and taxes.

3. The advocates of the theory of the equilibrium economic cycle see the reasons for the trend fluctuation in the short-term time period.

4. Scientists who advance the theory of a real business cycle assume that macroeconomic instability arises from sharp changes in different sectors of the economy, that is, when production technologies change dramatically.

Each of these points of view in that ora different degree correctly indicates the causes of fluctuations. But today there is no general theory that all economic schools could recognize.

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