Instability of economic development. Conditions and factors determining the instability of economic development
5.4 Economic instability.
The market economy has a certain instability, instability of economic development. However, this instability is not evil, which inevitably leads to disaster and the collapse of the economic system. With phenomena economic instability should be considered and taken into account in the economic policy of the state.
The task of economic policy is to achieve stabilization of the functioning and development of the economy, thereby providing a healthy basis for social and political stability.
Among the many forms of economic instability, the most significant are:
- cyclical fluctuations in the level of GDP, investment, consumption, employment;
unemployment;
inflation.
Economic development in a market economy involves a successive change in periods of production growth, GDP, employment, periods of decline.
The regularity of these successive alternations of ups and downs gives the economic development a cyclical character.
Economic cycles are periodic fluctuations in the level of economic activity in society.
The first economic crisis, from which periodically recurring crises are counted, was recorded in England in 1825. Then crisis phenomena began in other countries, repeating every 8-12 years. In 1873, the economic crisis simultaneously began in several countries of the world. This was the first global economic crisis in the history of cycles.
In economic theory, there are:
- long-wave cycles (Kondratiev's cycles) with a period of 50 years, which are associated with the change of generations of equipment and technology;
medium (industrial) cycles with a period of 8-12 years, which are associated with a deviation of demand from supply; their length is determined by the period necessary for the mass renewal of fixed assets;
It should be noted that all these types of cycles overlap one another.
We will consider and characterize the main phases of the middle (industrial) cycle.
Phases of the middle (industrial) cycle
A cycle is a period of time during which a successive change of the following phases occurs: recession, depression, recovery and recovery.
Recession - starts from the peak of the previous cycle and continues to the lowest point of the cycle.
This phase is characterized by a sharp decline in business activity. Firms suddenly discover that they have overestimated the projected demand for their products and are not able to sell manufactured goods at previous prices.
To sell off the surplus, they are forced to cut prices on their products. Firms suffer huge losses, they are not able to repay the loans taken and pay interest on them. A wave of bankruptcies begins and spreads throughout the economy. Unable to sell already manufactured products, enterprises are reducing production. Of course, there is no talk of expanding production anymore, and, as a result, enterprises are reducing investment in production, and demand for equipment is falling.
The decline in production causes a wave of layoffs of workers, rising unemployment. Population incomes are falling. Due to the decline in income, as well as because of the desire of people to postpone part of these incomes “for a rainy day”, the population’s spending on consumer goods is falling, which means that the demand for consumer goods and services is falling.
The living standard of those employed is reduced. Panic and general pessimism reign in society. We emphasize that during this period, interest rates on loans increase: firms seek to re-arrange money in order to avoid bankruptcy, there is a general pursuit of money, the demand for free cash is growing. In addition, banks themselves seek to set higher rates, since there is a high risk of default on loans issued by them.
Perhaps the most severe was the recession of 1929-1933, which went down in history under the name of the Great Depression, then the United States, according to economists, was thrown back by 146 years, national income fell almost 2 times, per capita income decreased 30%, the unemployment rate reached 25%.
Depression: reaching its lowest point, the economy has been in this state for some time.
The decline in production has almost stopped, and production and employment are at the lowest level. Enterprises avoid long-term investments, the population does not make expensive purchases. Everyone is in a state of uncertainty, fearing to start new business.
However, inventories are gradually dissolving, the decline in consumer and investment demand is stopping, and commodity prices are stabilizing. Since the demand for money has now fallen sharply, there is a decrease in interest rates on loans to the lowest level.
And the business world is slowly starting to come to life: enterprises that have managed to survive the crisis begin to update equipment, acquiring more modern equipment (the benefit of loans is now more affordable), introduce new technologies, and carry out measures to increase production efficiency. Their goal is to provide cost reduction in order to make a profit in the conditions of low prices for products.
As a rule, without the participation of the state, the way out of the state of depression proceeds very slowly, but when it reaches the bottom, production gradually begins to pick up speed and depression is replaced by recovery.
Recovery - starts from the lowest point of depression and ends when the economy reaches a pre-crisis peak.
The intensified economic activity that has begun forms the expectation of an increase in the level of current income. This is manifested in a gradual increase in consumer demand. In response, production begins to increase, primarily due to the involvement of free capacities, employment is growing and, as a result, incomes are growing (profit, salary).
Revenues are growing both nominal and real. People have the opportunity to purchase the goods they need. As a result, there is a further increase in demand. At some point, it becomes clear that expanding production without large-scale investments is no longer possible and their rapid growth begins. Enterprises have all the conditions for investment growth: it is possible to expand production through relatively inexpensive loans and there is a motive - profit growth. Investment demand is growing, and at the same time, production of almost all goods and services is expanding.
The expansion of production contributes to the creation of new jobs, an increase in the demand for labor and, accordingly, an increase in employment. The well-being of people is growing, in society pessimistic moods are replaced by optimistic ones.
Economists note that at this stage, demand growth outstrips supply growth and, as a result, aggregate demand exceeds aggregate supply.
It should be noted that, since there is an increase in demand for all types of resources, including monetary resources, simple interest rates begin.
Rise: comes after the recovery phase and continues to its peak.
At this stage, "the lynx goes to a gallop", there is an acceleration of economic development, which is manifested in the fact that new goods appear, new enterprises, investments grow, interest rates, prices, salaries, and employment increase. Part of the demand begins to be speculative in nature: many have a desire to purchase goods in order to later resell them profitably, since prices for most of the goods are rising. Large loans are taken for these purchases, i.e., partially the demand is supported by loans. When approaching the peak - the highest point of recovery, the economy overheats. Loans are becoming more expensive, stocks are growing and inevitably comes a moment when the whole system collapses like a house of cards, and again the economy is in a state of deep crisis.
In the vast majority of cases, each subsequent “peak” turns out to be at a level higher than the previous one, which reflects the overall growth of the economy, its progressive development
A sharp transition from boom to boom, economists attribute the fact that production growth is purposefully and systematically organized by manufacturers, and demand is spontaneously formed in the market by buyers and depends on many random factors. And since demand can easily decline, this is precisely what happens during the recession: the aggregate supply is greater aggregate demand.
Of course, the crisis for the country's economy is a great test, it carries many negative points, but we note the positive side of the economic crisis, which is to improve the economy. According to the principle of natural selection during a recession, inefficient enterprises with a high level of costs go bankrupt. "Surviving" enterprises carry out innovations that lead to increased efficiency, and subsequently to increased production. Old technologies are replacing new ones.
Currently, recessions in countries with developed market economies have become less deep (up to 2% of GDP) and shorter (6-12 months). There is a clear violation of the classical cycle, the phases of the cycle become more blurry, some phases completely disappear. Now, in the recession phase, there is no decrease in prices; on the contrary, prices are rising. This phenomenon is called stagflation.
Stagflation - a simultaneous increase in inflation and a decline in production, accompanied by an increase in unemployment.
The appearance of stagflation is explained by the fact that the state has a monopoly on the issue of money. The importance of production monopolies, which prefer not to reduce prices but to reduce production, has increased; labor unions have appeared on the labor market that do not allow wage cuts.
Reasons for Business Cycles
There is no consensus among economists about the causes of this complex phenomenon. Each economic school in its own way explains the nature of economic cycles.
Some economists argue that cycles are associated with external factors. They call such factors as major discoveries in science and achievements in technology, natural disasters (droughts, floods), wars, revolutions and other political upheavals, population fluctuations, etc. There is a theory that explains cycles by changing the ratio of pessimistic and optimistic moods in society . There is even a theory that links the dynamics of the economic cycle with changes in the configuration of sunspots.
Other economists believe that the explanation of the cycle lies in the internal processes taking place in the economy, and external factors are of a secondary nature. They believe that crises occur due to the fact that there are contradictions between the rigid organization of production and unregulated markets, that spontaneous development of the market leads to disruptions in market equilibrium, and this in turn leads to sectoral imbalances. That the crisis can also cause disruptions in the monetary sphere and errors in the state budget policy.
However, almost all economists agree that:
- fluctuations in the level of economic activity is a consequence of the deviation of the economy from the equilibrium state;
- investments in real capital, primarily in machinery and equipment, are crucial in the movement of the cycle;
- the state can actively influence the mechanism of the cycle, using the methods of budget policy, i.e. adjusting your income and expenses, as well as monetary policy methods, i.e. adjusting interest rates and money supply.
To regulate the economy, the state conducts a targeted economic
5.2 State policy to stabilize the economy
The main goal of the socio-economic policy of the state is to ensure economic and social stability and promote the economic development of the country. This overall goal can be specified for the following purposes:
- economic growth (allows for a higher standard of living);
full employment (provides the population with incomes and saves society from losses associated with underutilization of labor resources);
economic efficiency (using resources with maximum impact for society);
economic freedom (ensuring, within the framework of the law, freedom of choice, freedom of enterprise, etc.);
increase in the well-being of citizens (all citizens should be given the opportunity to live a decent life);
price stability;
securing a strong position in relations with other countries.
To achieve these goals, the state uses the following methods of impact on the economy.
1) Administrative methods are based on the power of state power and include measures of prohibition, permission and coercion. The fact is that the state has special rights that other actors in the economy do not have, first of all, this is the right to coercion. The state has the right, for example, to force you to pay taxes, and if you refuse, it can deprive you of property and even put you in jail. To monitor compliance with the rules established by the state, it creates special bodies, for example, the tax police. Administrative methods are methods of direct impact on economic entities.
In countries with developed market economies, these methods are used by the state mainly to ensure environmental protection (for example, a ban on the emission of harmful substances); guarantees of minimally acceptable living conditions for the poor (for example, the introduction of a minimum wage), as well as for the fight against the shadow business (for example, the requirement to provide information on income in the case of acquisition of real estate), etc.
2) Economic methods are associated with the creation of additional financial incentives or possible financial penalties, for example, in the form of fines and are indirect methods of influence on economic entities. Economic methods are divided into methods of monetary regulation and methods of budget regulation.
When it is on providing soft loans to manufacturers of products that you
are given at a low interest (loan fee) and for long periods, or when the state changes the amount of money in the economy using the methods available to it, this means that the state is resorting to monetary policy measures.
Monetary policy - a set of measures in the field of monetary circulation and credit aimed at regulating the economy.
When the state uses budgetary funds to regulate the economy, for example, reduces taxes for individual producers or introduces subsidies for the production of especially important products, these are already measures of the budget policy.
Budget policy - a set of measures to change the volume of revenues and expenses of the budget in order to regulate the economy.
3) Another complex instrument of state regulation is the state
etc.................
On February 15, a master class entitled “What the Global Economic Crisis Means for Russia” was held at the HSE, conducted by Mr. Odd Per Brekk, Head of the Permanent Mission of the International Monetary Fund in Russia.
The main representative of the IMF in the Russian Federation devoted his master class to the features of the pre-crisis development of the Russian economy and how they influenced the current situation of the country. He began his speech by identifying the main problem of the Russian economy, which turned out to be not raw materials orientation, as suggested by students previously interviewed in the audience, but instability. Moreover, according to Breck, the Russian economy entered a time of instability long before the 2008 crisis itself.
Thus, raw material dependence, a primitive export structure, high inflation are only prerequisites that allow us to talk about the most important problem - instability. Even in times of turbulent economic growth of the last decade, which averaged 5% per year, the volatility of this growth was quite high. It is clear that in many respects it repeated the behavior of oil prices and the international conjuncture. The bad news is that it brought an element of instability to the whole system, and this affected the investment.
Over the past 10 years, the average annual investment in Russia has been approximately 20% of GDP, which is almost two times less than in China and one and a half times less than in India - also the BRIC countries. With high volatility in oil prices and double-digit inflation, investors do not want to risk and invest a lot of money in the country, said Odd Per Brekk.
Even in the so-called fat years, the state’s economic policy contributed its share of instability. In particular, if we turn to fiscal policy and look at the dynamics of increasing government spending and increasing the budget, we can conclude that fiscal policy was and still is procyclical. At the same time, economic theory teaches that fiscal policy is one of the main tools to smooth out fluctuations, the IMF representative noted.
From 2002 to 2007, when oil prices were very high and the Russian economy did not need stimulation, government spending also grew, further fueling the economy. In a crisis, when Russian GDP began to fall, the authorities, fearing a budget deficit, seriously cut spending, depriving the economy of assistance. This is a typical example of an ineffective pro-cyclical policy, says Breck.
Another misfortune of Russia is weak institutions and corruption, and coupled with instability, this seriously worsens its competitive position in the world market. The main recommendations for the country in the near future are the transition to countercyclical fiscal and monetary policies, the fight against inflation, strengthening the independence of the Central Bank as an institution, and the fight against corruption. All this will help create a more favorable investment climate in the country.
In this regard, accession to the WTO can be considered as a serious measure to improve the institutional environment. For Russia, not more important is more open access to markets or a reduction in certain tariffs. Much more important for the country is the import of high-quality international institutions, the IMF representative is sure.
Anna Stasova, specially for the news service of the HSE portal
Photo by Vasily Begal
Our country has relatively recently switched to a market economy, and many still think that the series of economic crises that accompanied it was caused solely by errors in government, intrigues of foreign enemies, transitional costs, etc. All this may take place, but the truth is that market economy unstable in itself, even in the absence of all these factors. Like, by the way, a planned economy, or any combination thereof. With this text I am going to open a series of posts to discuss the internal economic factors that determine this instability. In it, I will also share with you a decision that has recently dawned upon me on what is needed in order to ensure economic stability.
The economy is largely determined by the basis on which forms of ownership it is built. In the modern Russian economy, the main forms of ownership are private and state. Let's take a closer look at them.
Private property belongs to one person who makes all decisions regarding her - about buying and selling, exchanging, donating, using and even destroying. An economy built ONLY on private property will NEVER be sustainable and predictable. The behavior of many people, each of which makes decisions by itself, is a priori unpredictable. Yes, such an economy will change faster than any other possible, but this cannot be equated with development, since not every change is development. A pure market economy is more likely an economy of Brownian movement, rather than development. Some of its supporters give out precisely this property as stability, because it may look like this on generalized graphs, but this is incorrect. Is there a difference for a person who has lost his home, has he lost his home because his personal business has collapsed, or because the entire economy of the country has collapsed? There may be different nuances in both cases, but in general this is one and the same situation: a lost house. In a pure market economy, some people constantly win and some lose, and the probability that an individual taken at random (or everyone!) Once suffers major economic losses for him will tend to unity (i.e., almost certainly). In fact, this can be seen as a continuous crisis that spans over time.
Since people in their mass prefer development rather than stomping on the spot, there is no clean market economy anywhere, and in many cases private property is regulated and protected by the state. In this case, the authority to make decisions regarding the property is partially transferred to the state. If all such powers are transferred to the state, then the property becomes state. Decisions regarding such property are made collectively by universal suffrage or at least by voting authorized representativesthat everyone voted for. In this case, decisions are made so as to improve the "average temperature in the hospital", i.e. At first there is development, but at the same time it is the same for everyone, which means that everyone is moving forward at the speed of the slowest, while those who develop the economy faster than others can be either artificially slowed down or collective exploitation, i.e. all "excess" growth is redistributed to the lagging ones. This reduces their motivation for efficiency and incentives to work. Such development tends to slow down until stagnation, after which, over time, a crisis nevertheless sets in - even more concentrated in time and space, more massive and overt, than market. Actually, those crises that are usually talked about are of this nature, i.e. one way or another, they are the result of state intervention, but most often this intervention was carried out to deal with small local crises arising from private governance, so that the state is simply ultimately to blame. It is important to note that stagnation is not stability, but a situation where some monitored statistical parameters are kept at an acceptable level at the cost of a decline in others that are equally important and significant, but are not officially monitored statistically. Those. beautiful picture in poor condition. Decisions made by an unqualified majority are almost as unpredictable as decisions of individuals, and are highly dependent on the quality of the statistical information provided, and on the integrity of the media.
The main benefit of this form of ownership is the alignment of property differences to achieve social stability, even at the cost of reducing economic efficiency and increasing the risk of economic instability. Decrease in economic efficiency occurs, firstly, because maximizing this efficiency is not the main goal, since decisions are strongly influenced by social factors, and secondly, since decisions are very large-scale, and at the same time, fine adjustment is impossible. Alignment inevitably means that someone will get more support than he really needs (but he certainly does not admit, because the private trader seeks to maximize individual utility, for him there is no concept of “too much”), and someone will get too few. Should maternity capital be provided to wealthy families? Yes, equally to all! Should I pay pensions to working and well-to-do pensioners? Yes, equally to all! “Manual control” may allow solving some of the most pressing issues, but always at the cost of social stability, because collegiality and equality are sacrificed.
In practice, these forms of ownership are often mixed or legally modified. For example, public funds can be distributed collectively only at the stage of forming the annual budget, and then decisions are made individually, for example, by ministers. This duality is state property, and decisions on it are made individually, as if it were private - and gives rise to opportunities for corruption. Already received the seemingly ridiculous term "Private-state" property as applied to state corporations. They are state-owned by the method of acquisition and de jure, but by the method of management and de facto they are private. In fact, almost all state property It is precisely such a “private-state” that allows the sole decision to carry out its privatization and turn it into a completely private. The problem is that the reason is not only in legal laws, as it seems to Navalny, but also economic. This becomes possible because in reality the state form of ownership is really not very suitable for managing such facilities in the current conditions. To be de facto state, it must be governed by universal decisions, and this is the slowest and least qualified way to make decisions. In this way, you can take the rules, for example: in each city there should be so many lights per square meter. km., giving such a degree of illumination at such a time of day. Once decided, and then just look at the execution statistics. This method is applicable for managing the planned mass production of the same type of standardized goods of guaranteed demand: "... so many tons of pig iron and steel per capita per year ...", the quality is prescribed in such a GOST. But if the population needs more varieties of goods of a certain category, then public administration will not be effective for such an industry, because either drown in a huge number of GOSTs, or will not produce a sufficient range of goods. Also, this method is weak when trading in market conditions. A private trader can flexibly change prices, while the state sets them centrally once a year or in another period, which means that it will almost always lose. Actually, this circumstance is most likely the deepest economic reason for the transformation of state property into "private-state". Public administration can ensure the production of oil and gas in accordance with GOSTs, but to establish prices for them in market conditions, one-man solutions are needed. And if the property is managed by sole decisions, then this is de facto not state property.
To solve this dilemma, a mechanism has been developed in which the state receives fixed payments, and the corporation - everything else, if any, i.e. private trader takes risks. There is a mechanism for government contracts that can work on the basis of an auction: who will bid better. Perhaps corruption could be overcome by making the corporation fully state-owned, managed only by open, collegial decisions and selling products at a fixed price set for a year, while private intermediaries would resell at their own peril and risk at market prices, which would avoid excessive exposure to a state corporation of sole decisions. But at the same time, of course, the state would have to come to terms with the fact that such private owners would work profitably, i.e. would resell its products more expensive than they bought. Now it looks like a crime for the state, although in fact it is probably the only sustainable solution to the problem.
The state will never be able to trade in a market economy as efficiently as a private trader, if only because of the lower decision-making speed. A reservation about a market economy is made here to weed out cases like wars when a private trader cannot trade because it is life threatening, and the state has an army and can trade, i.e. there is a powerful factor of influence of non-economic nature. Public administration is the lowest profitable of all economically possible, otherwise all the others would simply not be needed and would not have arisen. It is impossible to come up with some kind of magical rules so that everyone can act the same way and at the same time get rich evenly faster than if they united in groups of professionals using the effects of team synergy, or everyone would work for themselves to the maximum of their efforts in that area where they have the best ability. For different types tasks are better suited to various forms of ownership. Where local profit maximization is needed, private ownership is best. State ownership works better where redistribution between many is needed for property equalization, rather than an exchange between the two parties to maximize mutual benefit. There is an opinion that state economic management can be more efficient due to scale, which is not true for all sectors at all, due to the fact that it was said above about inefficiency due to equalization and small assortment.
This is not the only mechanism for turning state property into de facto private. Electoral fraud, political blocs, bribes, lobbying, etc. are also forms of private influence on government decisions for personal and personal gain. In recent years, the public has begun to pay more attention to this and monitor compliance with laws, which is very useful for the country. As far as one can judge, these phenomena are mainly not of an economic nature, but of a political nature, therefore we will not consider them here, although, of course, it is important to keep them in mind as well.
One of the determining factors in the modern world is instability. Traditional commodity markets are changing, the amplitude of fluctuations in currency systems reaches dangerous limits, unemployment losses are becoming more significant.
Paul Samuelson
The cyclical development of the economy. Types of cycles. The phases of the cycle and the dynamics of economic indicators. Structural crises.
The purchasing power of money. The essence of inflation. Causes and main forms of inflation: moderate, galloping and hyperinflation; open and suppressed inflation. The concept of inflationary expectations. Demand inflation and cost inflation. Stagflation. Measure inflation using a price index.
Economic and social consequences of inflation. Adaptation and anti-inflationary policies.
Unemployment, its essence and causes. The main types of unemployment: frictional, structural, cyclical, their distinguishing features and methods of partial overcoming.
The problem of full employment. The concept of the "natural norm" of unemployment. Unemployment rate and excess unemployment. Employment rates. Productive employment.
Socio-economic losses from unemployment. The essence of Ouken's law. Directions and types of state regulation of the labor market.
The relationship of unemployment and inflation. The essence of the Phillips curve and the boundaries of its practical application.
From the previous topic, you already know that economic growth is not identical to economic development. On the path to the growth of the national product, there are periods of sharp acceleration, accompanied by higher prices and inflation, and periods of decline in production and employment, when economic growth slows down or even stops. These disturbances of macroeconomic equilibrium are considered by economic science as economic instability.
As practice shows, this uneven development of a market economy is rhythmic: the acceleration and deceleration of economic growth alternate at a certain rhythm, forming economic cycle.
Business cycle - These are fluctuations in the macroeconomy, consisting of an alternation of recessions and ups in general business activity.
The tendency of the market economy to repeat economic phenomena It was noticed by economists in the first half of the XIX century. They drew attention to the frequency of such phenomena as an increase or decrease in demand, an increase in production volumes or its stagnation.
A certain sequence was revealed in the alternation of these phenomena. The problem was of such great importance for economic development that practically none of the leading economists escaped it. Recognizing the objective nature of the economic cycle, economists propose to study this phenomenon through an analysis of internal and external factors affecting the nature and duration of the cycle.
TO external factors Researchers in the cycle include non-economic phenomena such as fluctuations in solar activity, war, revolution, earthquake, and population migration. The cycle may be affected by discoveries of large mineral deposits, scientific and technological discoveries and innovations.
Major innovations such as railways, aviation, cars, computers, have a big impact on consumer spending and investment. But such global innovations appear very irregularly and therefore cause economic instability. Some economists see the reason for the fluctuations in the economy in the ratio of optimism and pessimism of business participants, that is, they highlight the psychological factors of the cyclical nature of the economy.
Theories explaining the economic cycle by the presence of external factors are commonly called external Unlike internal theories considering cyclicality as a product of factors inherent in the economy itself. The main internal, inherent in the economic system itself, the cause of fluctuations in business activity, most economists call the dynamics of the ratio of aggregate demand and aggregate supply.
If in some industries a boom has begun, which has caused a sharp increase in demand for machinery and equipment, it is natural to assume that the phenomenon will recur in 10-15 years, when these machinery and equipment will be completely worn out. In addition to the physical depreciation of fixed capital, there are other reasons for the economic cycle. Among them are:
- - personal consumption, the reduction or increase of which affects the volume of production and employment;
- - investment, i.e., investment in the expansion of production, its modernization;
- - economic policy state, expressed in direct or indirect impact on production, demand and consumption.
Modern economic theory assigns to external factors the role of a long-wave pulse generator, while internal causes are considered as converters of these pulses into oscillations in large cycles.
The general “pulse” of the economic cycle covers all aspects of economic development: the level of production, employment, income and prices, stock prices, sales, construction of various facilities, etc. Since economic processes affect such non-economic phenomena as fertility, people's health, marriages, and also political events, we can conclude that the economic cycle penetrates into all spheres of the nation’s life.
No cycle is similar to the other in intensity and duration of fluctuations of the main macroeconomic indicators: GNP, employment and price level. But there are a number of characteristics that are more or less inherent in any cycle. First of all, this is the passage of the economy during a cycle of four phases in succession - crisis, depression, recovery and recovery.
A crisis (recession, recession) is a phase of the economic cycle during which real GNP decreases over two or more quarters.
Let us try to present the general picture of the crisis as a deep upheaval of the entire economic system from top to bottom.
The market, which absorbed all manufactured goods unhindered, at some time is overcrowded, goods continue to flow in, and demand gradually decreases and finally ceases altogether. Anxiety spreads throughout the market. Demand has disappeared, and inventories are huge, and many enterprises continue to operate at full capacity due to inertia. Should a rapid drop in prices.
Truly heroic efforts are being made to save the situation, but all means are futile. Liquidation of enterprises and collapse begin. First of all, banks and credit institutions are dying. The confidence of market participants in each other is undermined.
All require payment in cash. Promissory notes, which were not in doubt just yesterday, are becoming plain paper. Loan interest rises. Crowds of unemployed appear on the streets. Famine begins, suicide. According to such a dramatic scenario, crises of the last century passed.
The most ambitious attempt to overcome the crisis with the help of state ball events was made by the United States during the Great Depression. Its essence is known to you from previous lectures. However, despite certain results, industrial crises continued.
In a crisis, only enterprises with great financial capabilities continue to make a profit by cutting costs. Medium and small enterprises do not have such an opportunity and suffer bankruptcy. Their ruin has its advantages for the industry as a whole, as it increases the general level of labor productivity. This lowers the cost of goods and, as a result, weakening the fall in the rate of profit. It turns out that the crisis reveals not only a limit, but also an impulse in the development of the economy, gives rise to predominantly intensive development, performing a stimulating function.
But the transition to the expansion of production cannot happen at one moment. Therefore, the crisis is replacing depression phase.
Depression is the phase of the cycle that begins after the crisis, when the recession lasts substantially longer than two quarters.
The level of production remains stable, but very low in relation to the onset of the crisis. Unemployment remains high. But the fall in prices is halting, inventory is stabilizing.
Revitalization is the phase of the economic cycle during which real GNP increases and employment grows.
The recovery is accompanied by a slight increase in production, some reduction in unemployment. Prices are gradually rising, and loan interest begins to rise. On the product market growing demand for new industrial equipment. The emerging recovery covers an increasing number of industries. At the end of the revitalization phase, renewal stimuli are exhausted, and extensive development begins again in the ascension phase.
The rise is the highest phase of the cycle, when the level of production exceeds that achieved in the previous cycle.
The rise often takes on a rush. Feverishly rising prices. Unemployment is reduced to a minimum while a substantial increase in wages. Demand for products of industries that determine trends in scientific and technological progress is growing sharply, demand for raw materials is growing, and prices are rising. The economy is coming to the next round.
A new cycle begins, but with different characteristics, duration and depth. Even from this largely superficial picture, it can be seen that each of the phases of the cycle has the ability to reproduce the subsequent phase. As a result, the economic cycle as a whole acquires the property of reproducing a new cycle.
What is the cycle time? Let us turn to the experience of a highly developed US economy. The economic system of this country between 1854 and 1986. went through 30 business cycles of varying intensity and duration. The points of view of duration distinguish the following types of cycles.
Large (classical) economic cycles cover a period of 7-11 years. Within a large cycle, usually two or three small, or “commodity”, cycles lasting 3-5 years are generated, which are generated by the dynamics of the value of stocks of inventory at enterprises. Two large cycles approximately characterize the time cycles associated with fluctuations in investment activity in the construction industry. These are building cycles. If we consider economic growth from a historical point of view, then from the beginning of the XIX century. You can find very long cycles lasting 50-60 years, the existence of which was revealed in the 20s of XX century. Russian economist N.D. Kondratyev.
Having processed with the help of special mathematical methods the data on the dynamics of the most important economic indicators of England, Germany, France and the USA, Kondratyev discovered curious patterns. Countries with a market economy in their development regularly go through the stages of ups and downs, which repeat after 50-60 years. These cycles are called today "Kondratiev waves." They are associated with a radical upgrade of equipment, which has a particularly long service life (railways, bridges, canals, dams).
The fate of Nikolai Kondratiev is very tragic. His views contradicted the theory of a "party approach to economic planning." In 1930, he was arrested on false charges and sentenced to 8 years. At the end of 1936, Kondratiev was seriously ill and began to go blind. However, in 1938 he was repeatedly convicted of the same far-fetched case and shot. He was only 46 years old.
The modern picture of a market economy has become inconsistent with the traditional scheme. So, for example, the industrial cyclical crisis of the mid 70's. was exacerbated by the oil crisis, but only in oil-consuming countries. Those countries that had their own sources of energy resources, not only did not suffer as a result of two crises, but even had a tendency to some development.
On the other hand, the expected rapid development of industry in the boom phase in many countries does not occur as a result of a sharp aggravation of the situation caused by the environmental crisis. Oil, food, energy, and raw material crises have been supplemented in recent decades by currency system crises. These are the so-called structural crises.
Structural crises are caused by imbalances between the development of individual spheres and industries, are usually protracted and do not always coincide with the onset of cyclical crises
Thus, the reason for the cyclical nature of the development of the economy lies in the conflict of production conditions and sales conditions, in the contradiction between production, which seeks to expand, and the growth of solvent demand that is not keeping pace with it. The material basis for the periodicity of crises is the renewal of fixed capital.
There is another approach to explaining the causes of crises in a market economy. According to this approach, the abstract possibility of crises is associated with the function of money as a medium of circulation: the mismatch between the purchase and sale at the place and time can create the prerequisites for the breakdown of many links in the sales and purchase chains; and as a means of payment: any entrepreneur cannot be guaranteed that by the time of payment the buyer of his products will be solvent, and then this gap in obligations will cause a chain reaction.
Since there are different views on the causes of cyclic fluctuations, there are also different approaches to the problem of their regulation. But there is also a common understanding of the fact that, firstly, the state is able to smooth out cyclical fluctuations, and secondly, the state must implement this in order to achieve economic stability.
There is a common understanding of what should be the whole line of government behavior aimed at overcoming cyclical fluctuations. This is already known to you from 3.1. “Expansion and containment policies.”
In recession all government activities should be aimed at stimulating business activity. In the field of tax policy, this means a reduction in tax rates, the provision of tax benefits for new investments. In the field of monetary policy, this is a decrease in interest rates for loans issued, an increase in the credit resources of banks, i.e. revitalization of economic life with the help of additional loans.
During the rise In order to prevent the economy from overheating and the related painful phenomena, the state pursues a containment policy that includes opposing measures in the field of fiscal and monetary policy.
That is, in order to smooth out cyclical fluctuations, the state should implement a counteraction policy: measures should go in the opposite direction to the currently existing fluctuations in the economic situation.
Of course, these are only general guidelines for counter-cyclical policies. We will talk in more detail about the methods of state regulation of the economy in the next paragraph.
An integral element of the modern economic cycle has become inflation. This is another manifestation of macroeconomic instability.
Inflation (from lat. inflatino - bloating) is the process of increasing the general level of prices for goods and services, in which the purchasing power of a monetary unit falls.
The purchasing power of money is this is the amount of goods and services that can be bought at a given price level for a given monetary unit.
At first, the ubiquitous transition to paper money was considered the cause of inflation, because they can be printed in any quantity. There was a certain reason for this assertion, and when furious inflation broke out in Germany after the First World War (prices for three years rose a trillion times!), Then the Central Bank of the country largely blamed it.
However, even after the issue of money was taken under the strict control of the parliaments, inflation did not disappear. And then economic science took on deeper studies and established that inflation has many different aspects, it has several reasons, many forms of manifestation, and, accordingly, there must be different ways to deal with it.
Please note that not every price increase is an indicator of inflation. Prices may increase due to improved product quality, worsening conditions for the extraction of fuel and raw materials, and changes in social needs. But this will not be inflationary price increases, but to a certain extent a logical, justified price increase for certain goods.
For example, the transition to the release of new modifications of cars with an economical diesel engine that meets international standards will obviously lead to an increase in the selling price: more advanced and high-quality products are expensive and valued higher.
But if there is a systematic increase in prices for mass-produced cars of the same model without any improvements, and often with a deterioration in performance, then it has a pronounced inflationary character.
P. Heine: “We should not forget: the prices of not only goods, but also measuring their value, that is, of money. Inflation is not an increase in the size of objects, but a decrease in the length of the ruler that we use. ”
Inflation is an extremely complex, controversial, insufficiently studied process.
First of all, inflation is distinguished by pace as 1) moderate or creeping (usually not more than 10% per year); 2) galloping
(from 20 to 200% per year); 3) hyperinflation (more than 50% per month for three quarters).
Economic theory considers moderate inflation as a boon for economic development, and the state as the subject of an effective economic policy. It allows you to adjust prices in relation to changing demand conditions.
Galloping inflation is already a difficult to manage process, a serious strain for the economy, although most transactions and contracts take into account such a rate of price growth.
Hyperinflation poses the greatest danger, causes enormous damage to the population, even wealthy sections of society, trade goes into barter, and the national economy is destroyed.
Guinness Book of Records: World's strongest inflation occurred
in Hungary in June 1946, when the 1931 gold foam was worth
130 trillion, paper foam. On June 3, 1946, notes were issued in the amount of "Egillion Billion."
The forms of manifestation are distinguished open and depressed inflation. Open inflation is manifested in rising prices. Suppressed inflation is inherent in an economy with administrative control over prices and incomes: externally, prices are stable, and excess money is transformed into a shortage of goods, constant angry queues and a “black market” arise, which to some extent reflect real prices.
Inflation may be balanced when price increases are moderate and simultaneous for most goods and services, and unbalanced when price increases have different rates for different product groups.
According to the nature of expectations, economists distinguish expected inflation and unexpected. Expected inflation can be predicted: take into account its rate in collective bargaining agreements, prices of factors of production, the government can timely change taxes and transfers, then the impact of inflation on the economy as a whole will be insignificant.
Unexpected inflation is another matter. It is characterized by a sudden jump in prices, which is extremely negative for money circulation and the tax system.
In such a situation, if inflationary expectations already existed in the economy, the population sharply increases the cost of acquiring goods, which in itself creates difficulties in the economy, distorts the real picture of needs in society and leads to a breakdown in economic relations. Thus, a sudden jump in prices may trigger further inflationary expectations and form inflationary psychology - Although a subjective thing, it’s quite real and extremely dangerous, because it creates a vicious cycle of self-sustaining inflation.
In terms of reasons, there are demand inflation and cost inflation.
Demand of inflation occurs when aggregate demand is greater than aggregate supply (too much money is “chasing” for fewer goods, since the costs of the state, population and firms grow faster than production).
Reasons for demand inflation:
- 1) the expansion of state orders (military and social);
- 2) an increase in demand for means of production in the conditions of a full load of production capacities;
- 3) an increase in the purchasing power of the population (wages) as a result of concerted actions by trade unions.
Cost inflation occurs when prices rise due to higher production costs.
Reasons for cost inflation:
- 1) oligopolistic practice of pricing;
- 2) the financial policy of the state;
- 3) rising prices for raw materials;
- 4) the actions of trade unions requiring higher salaries.
The danger of cost inflation to society is associated with the so-called inflationary spiral: a general increase in prices leads to a decrease in real incomes of the population, hence the requirements for increasing wages and the state policy of indexation of income. This, in turn, increases costs, which leads to a new jump in prices.
In practice, it is not easy to distinguish one type of inflation from another; they closely interact, therefore, wage growth, for example, may look like both demand inflation and cost inflation.
Starting from the second half of the 20th century, prices in all developed countries grew constantly, and from the 70s. - even during periods of economic downturn, when underloading of production reached significant proportions. This phenomenon, as you remember, was called stagflation.
Stagflation - inflation combined with stagnation (stagnation, depression) of production and high unemployment.
Quantification of inflationary processes is carried out using inflation indicators. Inflation is measured using price index.
Price Index - a relative indicator that characterizes the ratio of prices over time. To calculate the price index, the prices of the base year are usually taken as 100, and the prices of subsequent years are recounted in relation to the base year.
Inflation rate for the current year is determined as follows. The price index of the past year is subtracted from the price index of the current year and divided by the price index of the past year, and then multiplied by 100%.
In a market economy, inflation has become almost an integral attribute of economic life. This allows us to talk not just about the consequences, but about some specific functions of inflation.
We have already considered the point of view according to which insignificant inflation (say, an annual price increase of 3-4%), accompanied by a corresponding increase in the money supply, can stimulate production. But no matter what the supposedly “positive” functions of inflation, getting out of control and even remaining relatively weak, regulated, it has a whole complex of purely negative, negative effects on the course of economic development. We briefly mention only a few of them.
First, inflation affects efficiency at the microeconomic level. The higher inflation, the more relative prices are violated, the weaker their connection with costs. Remember how in Russia until the end of 1993 cattle was fed bread, since its prices were significantly lower than costs, which turned into an inefficient distribution of limited society resources.
Secondly, inflation makes it difficult to pursue macroeconomic policies due to imbalances between sectors of the economy, falling production and lower incentives to work.
Thirdly, inflation causes an escape from money to goods, turning this process into an avalanche-like one, exacerbates commodity hunger, and revives barter.
Fourth, with high inflation, owners of factors of production suffer huge losses, because in the short term prices of factors of production are fixed, and prices of final goods and services are growing very quickly. As a result, there is a sharp decline in the real incomes of owners of factors of production.
Fifthly, inflation negatively affects the fiscal system due to the Tanzi-Oliver effect (Latin American economists who first drew attention to it). Its essence is that inflation depreciates tax revenues that are accrued, for example, in the third quarter, and paid in the fourth quarter of the year, when their real value has already fallen.
Sixth, inflation is destructive to accumulated wealth, especially in the most liquid forms. This applies to the savings of the population, and to banks and institutions providing loans.
Seventh, the most important social consequence of inflation is the redistribution of national income, a decrease in the standard of living of the population, since both nominal and real wages lag behind sharply rising prices even if income is indexed.
Eighth, the internationalization of production facilitates the transfer of inflation from country to country, complicating international monetary and credit relations.
Speaking about the redistribution of income, it must be borne in mind that although the entire society suffers losses from inflation, this happens to an unequal extent. It is beneficial to live on credit during inflation. Therefore, creditors lose significantly more than debtors. The biggest gain from inflation comes from the government, because it is the country's largest debtor, and inflation depreciates debts.
To a lesser extent, those who can dramatically increase their incomes lose. And pensioners, disabled citizens and public sector employees do not have such an opportunity, therefore they bear the main burden of inflation on their shoulders.
There is also an age point. Among those receiving loans, the vast majority are those who are less than 45 years old, so it turns out that through the use of loans they really redistribute in their favor the state that the older generation accumulated in the pre-inflationary period.
Negative social and economic effects of inflation force governments different countries pursue a certain economic policy in this area.
Two approaches to managing the economy under inflation are possible: the first is to develop an adaptation policy, i.e. adaptation to inflation, the second - in an attempt to eliminate inflation through anti-inflationary measures.
Adaptation Policy It is based on the fact that all subjects of a market economy take inflation into account in their actions, primarily through accounting for losses from a decrease in the purchasing power of money.
Adaptation measures include: indexation of the interest rate on the value of the inflation premium; introduction of inflationary adjustment of wages in labor agreements; restructuring family budget towards the most inelastic goods and services, rapid materialization of money; increase in the share of borrowed funds relative to its own through the issue of shares, leasing, factoring.
Anti-inflationary policy it proceeds from the fact that the modern market economy is inflationary in nature, since it is impossible to eliminate all inflation factors (budget deficit, monopolies, imbalances in the national economy, inflation expectations, the transfer of inflation through foreign economic channels, etc.). Therefore, the goal of anti-inflationary policy is to make moderate, controlled inflation, to prevent its destructive scale.
For this, the following measures are applied:
- 1) reducing the budget deficit by raising taxes and reducing government spending;
- 2) the establishment of strict limits on the annual growth of the money supply, which allows you to control the level of inflation;
- 3) a change in the inflationary psychology of the population through stimulation of production, price liberalization, weakening of administrative customs control, etc .;
- 4) reducing the inflationary impact on the economy of overflows of foreign capital in the form of short-term government loans abroad to finance the budget deficit;
- 5) gradualism - A policy aimed at slowly reducing inflation over time by managing aggregate demand and without compromising employment;
- 6) the privatization of part of state property in order to increase budget revenues.
The most painful consequences of a recession in the economy (depression) include unemployment.
Unemployment is a surplus of labor caused by the excess of labor supply over demand for it.
Reasons for unemployment:
- 1) structural changes in the economy, manifested in the fact that the introduction of new technologies leads to the release of labor (structural unemployment);
- 2) the economic downturn, which is forcing employers to reduce demand for all resources, including labor (cyclical unemployment);
- 3) the policy of the government and trade unions in the field of remuneration: increasing the minimum wage increases production costs and thereby reduces the demand for labor;
- 4) seasonal changes in the level of production in certain sectors of the economy (seasonal unemployment);
- 5) changes in the demographic structure of the population, in particular the growth of the working-age population;
- 6) the existence in society of Lumpen layers that do not have and are not looking for work, at least in the field of the legal economy (stagnant unemployment).
At the same time, it must be clarified that only those who are looking for work or are awaiting return to work are classified as unemployed. Indeed, “unemployed” and “non-working” are not identical concepts. A person may not work for various reasons: some study and still do not work, others retire and do not work anymore, still others simply do not want to work.
In the USA, for example, only those citizens who are unemployed, immediately ready to work, are considered officially unemployed, for the last 4 weeks they have been actively looking for work, they are waiting for work to begin (already invited) within 30 days.
Depending on the reasons, the following types of unemployment are distinguished.
Frictional unemployment (from English Striction - friction, disagreement) - this is unemployment caused by constant and necessary changes in the allocation of society’s resources between the types and spheres of production of goods and services.
It arises either due to the fact that employers do not have complete information about the availability of categories of workers they are interested in, or employees do not know about the availability of suitable jobs. Frictional unemployment covers those who are in the “between jobs” position (voluntary or forced change of place of work, residence; temporary unemployment of women associated with the birth of a child; job search for those who have returned from military service, etc.).
A certain part of people is always in a similar situation, therefore this type of unemployment exists constantly. It is believed that frictional unemployment is a society’s pay for an efficient economy. Anything that improves information about jobs and the availability of workers or reduces the time it takes to find work leads to lower frictional unemployment.
Structural unemployment caused by changes in the structure of the national economy - the withering away of some professions and even entire industries, the emergence of new ones, the restructuring of the regional economies, and changes in technology.
Structural unemployment differs from frictional unemployment precisely in that with frictional unemployment the employee retains sufficient qualifications to change the industry or production. Those who have really lost their jobs due to structural changes are faced with the need for complete or significant retraining. Now Russia is facing structural adjustment that has no analogues in world history.
It is about eliminating millions of jobs whose existence did not meet the country's needs. For the most part, those who took these places (especially millions of managers) have no chance of finding work without a radical retraining.
American experts at the end of the 90s developed a forecast for the development of the US labor market for the next 5-10 years and found the inevitability of serious changes on it. It turned out that the share of workers in industry will fall from 18 to 9.7%, 43% of workers will work in the field of computer science.
Special demand will be presented to people with the following specialties: accountant-auditor, specialist in re-education of offenders, nurse, specialist in public relations, programmer, occupational therapist, medical equipment maintenance technician. The state and needs of the labor market of the new century as a whole confirm this forecast.
Structural unemployment is caused by objective reasons, therefore it is inevitable and always exists in society, but it can be reduced by the creation by the state and private firms of a network of centers for retraining personnel.
Cyclical unemployment arises as a result of cyclical declines in production, causing a decrease in the aggregate demand for all factors of production, including labor.
This is the most “unpleasant” type of unemployment - often massive and painful. The cyclical nature of economic growth is insurmountable, therefore, it is not possible to eliminate this type of unemployment, however, anti-crisis measures can mitigate the economic downturn and, accordingly, reduce the number of cyclical unemployed.
However, it suggests that full employment of labor resources does not at all mean a complete absence of unemployment.
In a vibrant economy, some of the workers are, for many reasons, inevitable and always out of the workplace. Therefore, the question arises: what number of unemployed can be considered permissible if the labor market is working efficiently and the economy is not in recession? Nobody will give an absolutely accurate answer to this question, however, economists still have a common understanding of what full employment is.
Full-time - the level of employment in the country in the presence of only structural and frictional unemployment.
If the number of unemployed exceeds the average for many years in a given country levels of frictional and structural forms of unemployment, then this excess is most likely due to the emergence of cyclical unemployment, i.e., with a recession in the economy. In the United States, for example, experts believe that full employment is achieved if 94-95% of able-bodied citizens have jobs.
Thus, the concept of full employment proceeds from the idea of \u200b\u200bthe existence of a natural rate of unemployment. - This is the state of the labor market in which there is an approximate balance between the number of free jobs and the number of skilled workers looking for work.
If the actual unemployment rate in the country is higher than natural, this means that we are faced with excess unemployment - a phenomenon undesirable and even dangerous in social and political terms.
Unemployment rate - this is the percentage (in percent) of the total economically active population of those people who are unemployed.
Full employment, the natural unemployment rate, excessive unemployment and the unemployment rate are the main interrelated indicators that are used to characterize the state of employment.
Guinness Book of Records: The lowest unemployment rate was recorded in Switzerland in December 1973 (population 6.6 million people), the total number of unemployed was 81 people. In Europe in 2012, Austria had the lowest unemployment rate of 4.4% and the highest - in Spain (25.8%).
Full employment is an empty idea if it means employment in jobs where nothing useful is produced. The semantic goal of the idea of \u200b\u200bfull employment is productive employment.
Productive employment - organization of the use of labor in such a way that the employed produce goods and services necessary for the population at the lowest cost.
Unfortunately, in our country over the preceding decades we have managed to create millions of positions for unnecessary managers, hundreds of thousands of jobs for quasi-scientists, for reserve workers in large enterprises, especially in the military-industrial complex.
Despite the objective nature of unemployment, socio-economic the losses that it causes are obvious:
Firstly, underproduction of products, i.e. some part of GNP is lost.
Secondly, tax revenues are reduced: the employee receives income that is taxed.
Thirdly, the standard of living of those who have lost their jobs is declining, since unemployment benefits are lower than wages.
Fourth, the psychological state of the unemployed is deteriorating due to loss of qualifications and self-esteem, a moral decline begins.
Fifth, social and political tension in society is growing.
To determine the magnitude of GNP loss as a result of unemployment, the so-called oaken's Law (was formulated american economist Arthur Ouken).
Oaken's Law: excess of the actual unemployment rate of its natural level by 1% leads to a lag in the volume of actual GNP compared to potential GNP by 2.5%.
Assessing unemployment as a socio-economic phenomenon, it is impossible to unequivocally state whether it is good or bad. From the point of view of a person who is left without work, this can be a tragedy. It is no coincidence that Americans say: “Unemployment is 100%, if you are unemployed, you yourself.” And from the point of view of economic dynamics, unemployment is an objective necessity.
Moreover, frictional unemployment is a means of more efficient allocation of labor resources of the society, and structural unemployment, if, of course, the benefits of retraining workers exceed its costs, brings a net gain to society.
However, given the negative consequences that cyclical unemployment has for society, and frictional and structural unemployment for people who are unemployed, employment needs targeted state regulation.
Directions of labor market regulation:
- 1) employment of the unemployed population and assistance in vocational training and retraining (labor exchange);
- 2) the creation of a flexible labor market, legal support of labor relations;
- 3) social protection of people affected by unemployment (welfare system).
In world experience, two main types of effects on the level of employment have been developed:
- 1) active type includes measures to create new jobs and to preserve and increase the level of employment in enterprises;
- 2) passive type includes the payment of various benefits to the unemployed.
Thus, the arithmetic “full employment” and the too high unemployment rate are equally contraindicated in the market system. With the level of unemployment equal to its natural norm, one speaks of effective full employment, which means a certain correlation between employment and unemployment.
Already in the 50s. many economists and politicians have suggested that the unemployment rate can be reduced if patience with a higher inflation rate is shown.
From the previous topic, you know that the fight against inflation will inevitably lead to a decrease in investment in the economy, since it requires a limitation of the money supply by reducing government investment and increasing the interest rate on loans.
In turn, a reduction in investment leads to a reduction in demand for labor and, consequently, an increase in cyclical unemployment. Attempts to reduce the mass of unemployed by increasing the number of jobs require an increase in investment by expanding state investment programs and a policy of low interest rates. This will inevitably increase inflation. The same result is obtained when trying to mitigate unemployment through the unemployment benefit system.
The Australian economist Arthur Phillips discovered this relationship by the example of the English economy. This phenomenon, as Phillips discovered statistically, has existed in the English economy for nearly 100 years.
Phillips Curve
The segment of the Phillips curve to the left of the point M It characterizes demand inflation, which may arise as a result of government attempts to establish an artificially high level of employment. The segment to the right of the point M reflects a fall in prices during a crisis.
During stagflation, not a movement along the Phillips curve occurs, but a series of shifts of the curve itself to the right and up, which indicates an increase in both inflation and unemployment at the same time.
Un - natural unemployment rate;
RP - price growth rate at the natural level of unemployment.
Until the mid 70s. many economists still believed that the A. Phillips hypothesis continues to be working. However, the real Phillips curve, made on the basis of the real relationship between inflation and unemployment in the United States for 25 years (1961 - 1986), turned out to be a twisted broken line.
The fact is that inflation is growing more steadily than falling. Growth in aggregate demand almost always leads to faster inflation and lower unemployment. But the fall in aggregate demand does not always produce symmetrical inverse results. Even, most likely, the economy will not give these results.
Therefore, the relationship between inflation and unemployment is clearly visible only in the short term, and it was precisely economists who hoped for the opportunity to choose a relatively long-term fiscal and monetary policy, having received the discovery of A. Phillips in 1958.
In the short term, the steeper the Phillips curve, the more significant the reduction in inflation due to a more modest decline in employment. Quantitative estimates are as follows: to reduce inflation by 1%, unemployment during the year should be 2% above its natural level. According to Oaken's law, this means a decrease in real GNP by 5% of the potential.
The problem of the need to pay unemployment for lower inflation is controversial. This is a dilemma. Some economists argue that quantitatively such a pay is not large, while others speak of the moral and psychological inadmissibility of even a slight increase in unemployment. In any case, no one has proved that firing a person for the economy is more profitable than providing him with work and getting a greater amount of product in the end.
D.Kennedy “We believe that if people have enough talent to invent machines that push people into the ranks of the unemployed, then people have enough talent to find a new job for the unemployed.”
TEST QUESTIONS
- 1. Give a definition of the cycle.
- 2. What are the external and internal causes of the cycle.
- 3. Describe how the phases of the cycle proceed. Why does each phase of the cycle contain the ability to exit from it?
- 4. Describe the various types of cycles by their duration.
- 5. What are the main directions of counter-cyclical policy?
- 6. What is meant by the purchasing power of money?
- 7. Explain the essence of inflation and name its main types.
- 8. What are the signs and negative effects of suppressed inflation?
- 9. What is called demand inflation and cost inflation?
- 10. What indicators can be used to measure the rate of inflation?
- 11. What are the main economic and social consequences of inflation.
- 12. What are the main measures of adaptation and anti-inflationary policies.
- 13. Give a definition of unemployment and what are the causes of this phenomenon.
- 14. What are the main types of unemployment.
- 15. How do they differ in terms of causes and methods of partial overcoming?
- 16. What does economics call full employment?
- 17. Why is the corresponding unemployment rate called natural?
- 18. What are the main indicators of employment.
- 19. What are the economic and social consequences of unemployment?
- 20. Formulate the law of Ouken.
- 21. What are the main directions and types of state regulation of the labor market?
- 22. How are unemployment and inflation related?
- 23. What is the essence of the Phillips curve? What are the boundaries of its practical application?
TASKS AND EXERCISES
- 1. Suppose that the inflation rate was 0, and the real interest rate was 5%. What size of the nominal interest rate can guarantee the same real interest rate subject to inflation rising to 15%?
- 2. The inflation rate is 100% per year. What will be the consequences of inflation for the following individuals:
- a) the lender who provided a loan for a period of one year at 50% per annum?
- b) the borrower who took a loan for a period of 1 year at 50% per annum?
- c) a person with a fixed income?
- d) a tenant, if the rent has increased by 70% over the year?
- 3. If prices rise by 15% per month, how much will they increase during the year?
- 4. Try to determine the status of the following people in the workforce:
- a) a qualified mechanic who can’t find a job that matches his level and expects a general improvement in the economy in order to again look for a job;
- b) full-time student;
- c) temporarily reduced worker of the bearing plant (due to lack of demand for certain types of bearings) and awaiting return;
- d) a woman who has left work and is expecting a child;
- e) a woman who has left work on maternity leave;
- f) an engineer working due to liquidation
janitor in housing and communal services;
- g) the engineer dismissed due to the liquidation of the office, who could not find work.
- 5. If the official unemployment rate is 10% and the number of employees is 90 million, how many are unemployed?
- 6. The following are conditional data on the dynamics of unemployment and price index:
Unemployment rate,% |
|||||
Price index |
Draw a graph characterizing the Phillips curve.
- 7. In Russia in 1994, the employed population was 68.5 million people, and the economically active - 73.96 million people. What was the number of unemployed, and what was their share in the economically active population?
- 8. Using the law of Ouken, calculate the absolute loss of production associated with unemployment:
Actual unemployment rate \u003d 9.5%.
Natural unemployment rate \u003d 6%.
Nominal GNP \u003d 3300 billion rubles.
9. Set the correspondence between the phases of the cycle and their contents:
10. Set the correspondence between the forms of unemployment and their content:
WORKSHOP TASKS
- 1. List your own portfolio of assets. What part of it do you keep in the form Mr Do you have any assets in the form of M 2such as savings deposits? Do you have securities or real estate? Does the part of your asset portfolio stored in the form change over time Mr If so, what are the reasons for these changes? Does your personal demand for money have a stable relationship with your income and with existing interest rates? Discuss these questions.
- 2. Try to find reasons why government control of prices and wages may be ineffective to suppress inflation.
- 3. During the New Year festivities in all Christian countries, the population's demand for cash increases. How should the Central Bank react to this if it wants to support money supply how is the constant? What will happen to the monetary base and the money multiplier?
- 4. You already know the views of Keynesians and monetarists on ways to maintain macroeconomic stability. Compare their advice on regulating money circulation and curbing inflation. Write the results of the comparative analysis in a table.
- 5. Despite the fact that money is more convenient for transactions than barter, the latter still has not disappeared from the modern economic system. Give an example of barter from your personal experience and explain why barter was used in this case.
- 6. What inflation rates do you expect this year? To what extent are your expectations determined by the experience of the year previous Did articles with economic forecasts or political reviews affect your expectations of future inflation?
TESTS
- 1. When the economy goes through a boom phase:
- a) inflation begins to grow;
- b) the real GNP does not change;
- c) frictional unemployment disappears;
- d) increasing cyclical unemployment.
- 2. Expected inflation harms:
- a) holders of money;
- b) people with fixed incomes;
- c) restaurant owners;
- d) all of the above.
- 3. External signs of inflation are as follows:
- a) the price of labor increases, the supply of goods decreases;
- b) rising prices for goods, falling real wages;
- c) reduced prices for goods;
- d) real incomes of the population are growing.
- 4. The rate of inflation is:
- a) foreign trade price index;
- b) consumer price index;
- c) nominal exchange rate;
- d) purchasing power parity of currencies.
- 5. Economists believe that cyclical unemployment:
- a) a temporary phenomenon;
- b) capable of self-regulation;
- c) does not constitute a serious problem;
- d) occurs during recessions.
- 6. Full employment is associated with:
- a) the complete absence of unemployed;
- b) hyperinflation;
- c) the concept of the natural rate of unemployment;
- d) cyclical unemployment.
- 7. Stagflation refers to a combination of:
- a) inflation and unemployment;
- b) the growth of aggregate production and inflation;
- c) rapid economic growth and unemployment;
- d) rapid economic growth and inflation.
- 8. Cyclical unemployment is associated with:
- a) with a decrease in the level of economic activity;
- b) with an increase in labor productivity;
- c) with a recovery phase in the economic cycle;
- d) with the division of labor.
- 9. Over time, the natural rate of unemployment:
- a) should be reduced;
- b) must grow;
- c) may vary;
- d) may decrease, but cannot grow.
- 10. When the inflation rate is below the expected rate:
- a) unemployment is changing;
- b) unemployment should increase;
- c) unemployment should be reduced;
- d) unemployment is constant.
- 11. With full employment, but high inflation, which policy is likely to lead to a decrease in its pace:
- a) increase in government spending;
- b) reduction of government spending;
- c) tax reduction;
- d) increase in taxes.
BLITZ-POLL
- 1. The cyclical nature of the economy is continuous fluctuations in market conditions.
- 2. Periods of increased economic activity are characterized by intensive development.
- 3. The business cycle includes four phases.
- 4. Fluctuations in investment do not affect the economic crisis.
- 5. State regulation can prevent the economic crisis.
- 6. Structural crises are short-lived.
- 7. Inflation is usually not related to money supply.
- 8. Inflation is not possible in the absence of money.
- 9. Even at 1000% per annum on bank deposits, the real interest rate may be negative.
- 10. Inflation in any case is tantamount to a decrease in real incomes.
- 11. A 10% reduction in prices with constant income means a 10% increase in real income.
- 12. The population is quickly rebuilding its behavior in the course of inflation.
- 13. From inflation, the whole society suffers losses equally.
- 14. Indexing income is very effective method fight against inflation.
- 15. Full employment means a complete absence of unemployment.
- 16. The simultaneous existence of inflation and unemployment is called depression.
- 17. Frictional unemployment is seen by economists as a completely unacceptable phenomenon.
- 18. The Phillips Curve describes the positive relationship between inflation and unemployment.
- 19. When the economy goes through a boom phase, inflation begins to rise.
- 20. Excessive unemployment - a situation where the official unemployment rate is higher than natural.
- 21. The cause of structural unemployment is the decline in general economic activity.
- 22. The active type of employment impact is the payment of unemployment benefits.
BASIC CONCEPTS
Adaptation Policy
Anti-inflationary policy
Countercyclical policy
Unemployment
Hyperinflation
Gradualism
Depression
Natural unemployment rate
Oaken's Law
Stagnant unemployment
Excess unemployment
Inflationary psychology
Inflation
Cost inflation
Demand inflation
Phillips Curve
A crisis
Revitalization
Official Unemployment Rate Suppressed Inflation Rise
Currency purchasing power
Full-time
Productive employment
Seasonal unemployment
Stagflation
Structural unemployment Structural crises Inflation rate Frictional unemployment Cyclical unemployment Business cycle
LITERATURE
- 1. Blaug M. Economic thought in retrospect. M .: Business, 1995.
- 2. Bogdanov I.Ya. Economic security of Russia: theory and practice. M .: ISPI RAS, 2004.
- 3. Gershaft M. Remuneration, employment and social protection. // REJ. № 3. 2002.
- 4. Grebnev L.S., Nureyev R.M. Economy. Basics course: Textbook for universities. M .: VITA, 2005, ch. fourteen.
- 5. Monetary policy in the face of inflation. // Money and credit. No. 6. 2005.
- 6. Livshits A. Inflation. Short special course. // REZH, No. 4-6. 1992.
- 7. McConnell C., Bru S. Economics: principles, problems and politics. M .: INFRA-M, 2002, TL, p. 163-173, 338-344. T. 2, p. 346-357.
- 8. Nikitin S.M. Inflation and the fight against it: foreign experience and Russia. // Money and credit. 2003. No. 5.
- 9. Dictionary of Macmillan's modern economic theory. M .: INFRA-M, 2003.
- 10. Heine P. Economic way of thinking. M .: News, 1991, p. 483-490.
- 11. Economic and national security: Textbook / Ed. Oleinikova E.A. M .: Exam, 2004.
TOPICS OF ABSTRACTS
- 1. Features of inflation in Russia.
- 2. Methods of combating inflation: Western experience.
- 3. The picture of Russian unemployment.