Instability of the economic system. II
In the previous chapter, the conditions for achieving and the main signs macroeconomic equilibrium, which in real economic reality is constantly violated. The market economy is characterized by macroeconomic instability, expressed in periodic ups and downs in business activity, which forms the economic cycle. The study of this chapter will allow you to determine the factors affecting the flow economic cycle, identify the main signs of macroeconomic instability, study its impact on the economic development of the country and then proceed to consider a system of measures and measures to ensure macroeconomic stabilization.
Any national economy is in constant motion, its proportions and relationships change and transform both in space and in time. Under these conditions, macroeconomic equilibrium appears as a desired state, as a tendency, an ideal to which a functioning economy strives. A developing national economy is characterized by a constant deviation from equilibrium, therefore it is quite legitimate to consider it as an entity constantly deviating not only from the ideal, but also from the equilibrium state.
The essential forms of manifestation of macroeconomic instability are inconsistencies between aggregate demand and aggregate supply, savings and investments, government revenues and expenses, etc. The functional forms of its manifestation are everything that can slow down the achievement of the main strategic goals of the development and functioning of the national economy, namely:
cyclical downturns in national production;
unemployment;
inflation.
Fundamentals of Macroeconomic Theory 325
These forms of macroeconomic imbalance do not necessarily occur simultaneously. For example, an increase in unemployment may well be accompanied by a decrease in prices, and a drop in national production does not always coincide with an increase in unemployment. Other situations are also possible. At the same time, the loss of macroeconomic equilibrium in all forms of manifestation causes the desire to restore it. Both the removal and the approach of the national economy to an equilibrium state have their reasons. Cyclicity is found in these fluctuations economic development.
The first single economic crises were recorded in England (1821) and Germany (1840). The next crisis has already covered a number of countries - the USA, England, France and Germany (1847). The crisis of 1857 was the world's first cyclical crisis. Then economic systems were shocked in 1873, 1882 and 1890. The most devastating was the crisis of 1900-1901 that began almost simultaneously in Russia and the United States. The cyclical dynamics of the market economy was observed throughout its formation and development.
At any national economy there are circumstances that both bring it closer to the trajectory of equilibrium development, and move away from it. They manifest themselves in different ways in different time periods, therefore, the analysis of macroeconomic instability assumes taking into account the time factor. This allows us to identify patterns and tendencies of macroeconomic fluctuations.
Economic cyclicality is a recurring imbalance in the national economy, which is accompanied by a periodic reduction and then an increase in the volume of production and aggregate demand with an episodic restoration of equilibrium.
The economic (business) cycle is the regular fluctuations in the levels of production, investment, employment and income, usually lasting 3-12 years, relative to a long-term trend.
The trend is the long-term dynamics of real GDP, calculated as the average value of its fluctuations in the course of economic cycles. The higher this dynamics is, the greater the angle to the abscissa axis is the trend line.
The cyclical nature of development implies the return of the system to the same position. Therefore, we can say that the economic cycle is the period of time between two identical states of the economic environment, or between two identical phases of economic development (Figure 10.1).
326 Section III
The tipping points of the business cycle are the peak when the economic growth during the economic cycle reaches its maximum, and "bottom" when it drops to its minimum. The distance between two adjacent "peak" or "bottom" points is the cycle time. The distance from the vertical tipping points to the trend line measures the amplitude of the cyclical fluctuations.
The economic (business) cycle is a single process that successively passes through four phases: crisis (recession, contraction, recession), depression (stagnation), revival (expansion), recovery (expansion, boom).
More on topic 10.1. Macroeconomic instability and form manifestations. The cyclical nature of economic development and its causes. Cycle phases:
- 10.1. Macroeconomic instability and form manifestations. The cyclical nature of economic development and its causes. Cycle phases
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It is now clear that the actions taken by governments to counter the Great Recession may have delayed systemic collapse, but did not revive the old normality. Growth around the world is very sluggish - that is, debt continues to grow faster than the productive capacity to service it, and inflation (another way to reduce debt burden) remains below target.
Now "sluggish" growth turns into "absent". Mini-loan bubbles such as auto loans, mortgages, and student loans are exploding in the US, forcing economists to rethink their bullish scenarios for 2016. The Federal Bank of Atlanta, for example, predicted solid GDP growth of 3.8% in August, and now it is less than 2%, and the forecast continues to decline.
US GDP Growth Forecast (in green)
Not surprisingly, panic breaks out. It is assumed that a unique situation has developed in the UK after the decision to leave the EU:
(Telegraph) - Official data on Friday showed that construction of housing, public facilities and infrastructure declined in August, indicating a rapid decline in the UK construction industry and even a possible recession.
Construction volumes declined 1.5% month-on-month, which is unexpected after rising 0.6% in July, according to the UK Statistics Office. Selected Bank of England indicators show a significant drop in demand from banks in the months following the EU exit vote, as fewer Britons were willing to take serious financial solutions... Demand for mortgages has fallen sharply - the balance of 44% of banks reflects a decrease in client interest, and this is the most negative result in almost two years.
Governor of the Bank of England Mark Carney told the audience in Nottingham that the current low inflation environment “will change,” the value of the pound will fall to drive up prices in the economy. He said it would first affect food prices, saying the situation would "get difficult" for the lowest income earners as the UK moves from no inflation to some inflation.
Inflation, which stood at 0.6% in the year to September, is projected to rise to 3% by the end of the year. This is a whole percentage higher than the 2% target set by the Bank of England.
Here in the USA - where our problems best reflect the situation in developed world in general - the Fed stopped even mentioning its function of maintaining price stability:
(Reuters) - Federal Reserve May Need High Pressure Economy To Reverse Negative consequences crisis of 2008-2009 - a decrease in production and employment. There is a risk that they will remain like a scar, the chairman of the Federal Reserve said Friday. Janet Yellen ( JanetYellen) considering those sectors of the economy where recovery may be insufficient.
Without mentioning interest rates and pressing policy issues, Yellen said there is growing concern in the Federal Reserve about the decline in US economic potential, and that vigorous action may be required to rebuild it.
In his lunchtime address to the congregation responsible persons and academics in Boston, Yellen said the question is whether this damage can be remedied "by temporarily introducing a 'high pressure economy' with high aggregate demand and a tough labor market."
“Of course, you can define possible ways for this, ”she said. Finding policies that can lower unemployment and stimulate consumption, even with the risk of high inflation, can force businessmen to invest, boost confidence, and bring new workers into the economy.
ChapterDoubleLineCapitalJeffrey Gundlach ( Jeffrey Gundlach ) said he understood it this way: "It is not necessary to tighten policy just because inflation is over 2% ... Inflation could rise to 3% if the Fed believes it is temporary."
“A strong economy could partially offset the likely damage on the supply side, then, during recovery periods, those in charge may want more cushioning than the traditional notion of not being highly dependent on supply and demand,” Yellen said. This makes it all the more important for decision makers to respond quickly and energetically to the economic downturn, in order to reduce its duration and severity. "
Aside from catchy words and distracting expressions, it is clear that a bunch of economists whose models stopped working without seeing an alternative (since they have been working on these models all their lives) are going to turn the knob "off scale" and see what happens.
Individual countries have tried “temporarily increased inflation rates” in the past, and the result was always and everywhere like a hijacked train that either went off track or crashed into some stationary object, with very bad consequences. In other words, the higher consumption and investment initially received due to the rise in inflation were more than offset by greater instability than could be guaranteed by such a policy.
But never before has a monetary panic engulfed the entire world at the same time, which means that there is little that can be said with certainty. It is at least likely that the combination of huge costs in budget deficit, as well as essentially unlimited money creation, will indeed provide some "growth". But it is also likely that once started, this process will quickly get out of control - after all, everyone understands that if governments are actively generating inflation (thereby actively devaluing their money), it makes sense to borrow as much as possible and spend this money on any real thing. at any price. Whether the outcome is called "boom and bust," or economists come up with some other term to shift the blame, the chaos will be enormous.
And it looks like it will start soon.
Economic development is not stable. This means that in practice, the development of the economy is not uniformly progressive, but cyclical: economy periodically experiences recession, depression, revival, recovery (see page 54).
The economy of any country is a constantly evolving complex structure consisting of many actors with inconsistent and often conflicting goals. It is not surprising that the economic barometer rarely stops at the “clear” mark very rarely and not for long. Small fluctuations in its readings are considered normal and do not cause concern. A cause for concern arises when the barometer needle goes off scale, or if the deviation is chronic.
Below we will talk about such types of deviations as inflation and unemployment, their types, stagflation.
The amount of goods and services that money can buy is called the purchasing power of money.
X Inflation is a decline purchasing power money, which leads to a general rise in prices in the economy. In the terminology of economic equilibrium, inflation means the mutual discrepancy between the flow of money and the flow of goods in the sense that there is more money in an economy than the sum of the prices of goods. The reason for this may be the growth in effective demand, which outstrips the economy's ability to satisfy them. The rise in prices caused by this circumstance is called demand inflation. And the increase in the costs of production of goods and services, which increases their price, but by no means their quantity, generates cost inflation. One should not think that the consequences of inflation are equally dire for everyone. As often happens in life, “someone loses - someone finds”.
Frictional unemployment(natural unemployment rate) is an inevitable phenomenon in market economy due to the presence of freedom of movement in the labor market at any time when some of the people are in the process of changing jobs.
The reason for the structural unemployment are structural shifts in the economy, due to which people of certain professions or residents of certain regions lose their jobs. Although structural unemployment is as natural as frictional unemployment, its overcoming is already associated with the need for social costs: it takes time and money to train such unemployed in new professions for which there is a demand, or to give an opportunity to move to another region.
Cyclical unemployment is a companion of economic recession and depression (a drop in production growth rates, or even its contraction). Unlike other types of unemployment, it is characterized by an absolute excess of the number of unemployed over total vacancies work places.
Eiken's law (though empirical) speaks volumes about the consequences of unemployment: an excess of the actual level of unemployment by 1% over the natural level of unemployment leads to a lag in the real GNP from the potential level by about 2.5%. The potential level of GNP is the maximum possible output of goods with the full use of the resources of the available quality.
Stagflation is a manifestation of economic instability, combining inflation and unemployment.
Fundamentals of Economics, Tutorial for schoolchildren (issue 2), E.G. Limanova, L.P. Bufetova
Lesson content lesson outline support frame lesson presentation accelerative methods interactive technologies Practice tasks and exercises self-test workshops, trainings, cases, quests homework discussion questions rhetorical questions from students Illustrations audio, video clips and multimedia photos, pictures charts, tables, schemes humor, jokes, jokes, comics parables, sayings, crosswords, quotes Supplements abstracts articles chips for the curious cheat sheets textbooks basic and additional vocabulary of terms others Improving textbooks and lessonsbug fixes in the tutorial updating a fragment in the textbook elements of innovation in the lesson replacing outdated knowledge with new ones For teachers only perfect lessons calendar plan for the year methodological recommendations of the discussion program Integrated lessonsThe purpose term paper is the consideration of the essence, structure, types and forms of such economic phenomena as unemployment, inflation, economic cycle. An attempt will be made to study the methodological foundations of regulating the relationship between employment and inflation, as well as an analysis of the problem of employment, unemployment and inflation in Russian Federation... That is, the problem of macroeconomic instability will be disclosed by the example of two manifestations: unemployment and inflation, since most economists recognize these indicators as the most striking manifestation of macroeconomic instability.
Introduction 3
1. What is macroeconomic instability and how does it manifest itself? 5
1.1. The essence of the concept of macroeconomic instability 5
1.2. Main forms of manifestation of macroeconomic instability 6
1.3 Business Cycle: Key Macroeconomic Indicators and 8
potential GNP
2. Unemployment 12
2.1. Essence of Unemployment 12
2.2. Types of unemployment 14
2.3. Unemployment in Russia and the dynamics of its level 17
3. Inflation 20
3.1 Causes of inflation 20
3.2. Measurement and indicators of inflation 24
3.3 Types of inflation 25
3.4. Influence mechanism of inflation on the economy 27
3.5. Inflation in Russia 29
4. The relationship between inflation and unemployment: a general formulation of the problem 31
Conclusion 33
References 36
The work contains 1 file
JSC VPO "Institute of Management, Marketing and Finance"
COURSE WORK
in the discipline "Economic theory"
Topic 44: Macroeconomic instability and features of its manifestation in the economy of the Russian Federation
Completed: student gr. MA-114 T.N. Meshcheryakova
Supervisor: E.A. Holy Spirit
Grade:
Date:
VORONEZH 2012
Introduction 3
1. What is macroeconomic instability and how does it manifest itself? 5
1.1. The essence of the concept of macroeconomic instability 5
1.2. Main forms of manifestation of macroeconomic instability 6
1.3 Business Cycle: Key Macroeconomic Indicators and 8
Potential GNP
2. Unemployment 12
2.1. Essence of Unemployment 12
2.2. Types of unemployment 14
2.3. Unemployment in Russia and the dynamics of its level 17
3. Inflation 20
3.1 Causes of inflation 20
3.2. Measuring and Indicating Inflation 24
3.3 Types of inflation 25
3.4. Influence mechanism of inflation on the economy 27
3.5. Inflation in Russia 29
4. The relationship between inflation and unemployment: a general formulation of the problem 31
Conclusion 33
References 36
Introduction
It is known that any society develops unevenly. Each stage of development is characterized by progress - prosperity or regression - crisis. In the economic life of society, these concepts can be compared with the phenomenon of macroeconomic equilibrium or macroeconomic instability.
In an ideal economy, real GNP would grow at a fast and steady rate. In addition, the price level measured by the price deflator or the consumer price index would remain unchanged or rise very slowly. As a result, unemployment and inflation would be negligible. But experience clearly shows that full employment and price stability are not automatically achieved.
Our society strives for economic growth, as well as full employment and stable price levels, along with other less calculable goals.
Unfortunately, the Russian Federation is characterized by manifestations of forms of macroeconomic instability in a very pronounced form. In addition, in Russia at the present time, many employment problems are of a veiled, hidden nature. Along with ensuring full employment, maintaining price stability is one of the most important goals of the national economy. Inflation, like unemployment, has serious negative economic and social consequences.
Unemployment and inflation (as the main indicators of macroeconomic instability) have existed, exist and will continue to exist, since the economic system of any state cannot always function flawlessly. There will always be a rigidity of wages that prevents the level of wages from being lowered to the point of equilibrium and thus gives rise to unemployment expectations; from time to time, states will be characterized by an imbalance between the money supply and commodity coverage, etc. Thus, it is obvious that the relevance of the research topic is dictated by theoretical and practical circumstances.
The aim of the course work is to consider the essence, structure, types and forms of such economic phenomena as unemployment, inflation, the economic cycle. An attempt will be made to study the methodological foundations of regulating the relationship between employment and inflation, as well as an analysis of the problem of employment, unemployment and inflation in the Russian Federation. That is, the problem of macroeconomic instability will be revealed by the example of two manifestations: unemployment and inflation, since most economists recognize these indicators as the most striking manifestation of macroeconomic instability.
1. What is macroeconomic instability and how does it manifest itself?
1.1. The essence of the concept of macroeconomic instability.
To reveal the essence of the concept of "macroeconomic instability", in my opinion, it is necessary to have a clear idea of the state of macroeconomic equilibrium.
Macroeconomic equilibrium means a choice in the economy that would suit all subjects of economic activity. The optimal choice in the economy offers a balance in the way of using limited production resources and their distribution among members of society, that is, a balance in production, consumption and use of resources, demand and supply, factors of production and its results, material flows.
The ideal balance will be the stable use of the economic potential of labor resources with the optimal implementation of their interests in all structural elements National economy. Revealing violations and deviations from the ideal model makes it possible to find ways and means to eliminate them. In addition to ideal and actual equilibrium, a partial equilibrium is distinguished, that is, an equilibrium in individual markets for goods, and a general one, which is a single interconnected system of partial equilibria.
Thus, from the above, we can conclude that the theory of general economic equilibrium explains the process of coordinating the plans of economic entities with certain production capabilities and consumer preferences. This theory is static, since its goal is to determine the conditions that ensure the equality of supply and demand simultaneously in all markets.
To reveal the concept of "macroeconomic instability", it is necessary to familiarize oneself with the main forms of its manifestation.
1.2. The main forms of manifestation of macroeconomic instability.
The main forms of manifestation of macroeconomic instability are:
The cyclical nature of macroeconomic development, which is periodic instability in the trend of long-term economic growth;
Inflation, which slows down scientific and technological progress, disorients capital investment, restrains investment processes;
Imperfection of the taxation system, as a result of which there is a reduction in total income;
Shortsighted actions of the state in the field of social policy, unjustified expansion of social programs;
Unemployment, which results in lower incomes of the population, which, in turn, reduce savings, etc.
Consider the above forms of macroeconomic instability.
The cyclical nature of macroeconomic development.
In general, the crisis is a sharp decline in production, partial destruction of productive forces, overproduction of goods, bankruptcy of many enterprises, rising unemployment, falling wages, a sharp rise in the cost of credit and a fall in its volume.
As already mentioned, society develops unevenly, through ups and downs. Oscillating economic dynamics have been observed for 170 years. The first economic crises date back to 1821 in England and 1840 in Germany. Since then, they have been repeated every 7–12 years. The crisis of 1873 was the first world economic crisis in the history of cycles. The reasons for the cyclical nature are periodic depletions of autonomous investments, weakening of the multiplier effect, fluctuations in volumes money supply, renewal of "basic capital goods", etc.
Inflation.
Inflation is an increase in the general price level. This, of course, does not mean that all prices will necessarily rise. Even during periods of fairly rapid inflation, some prices may remain relatively stable while others may fall. One of the main pain points of inflation is that prices tend to rise very unevenly. Some jump, others rise more moderately, and still others do not rise at all.
Taxation.
The state cannot exist without taxes. Taxes are mandatory payments levied by the government on legal and individuals in order to meet social needs. The set of taxes, payments, principles of their construction and methods of collection, fixed by law, forms a tax system.
Taxes are not only the main source of replenishment of government revenues, but also one of the main levers of government influence on the market economy. Therefore, the creation of an effective taxation system is one of the most important tasks of any country.
Unemployment.
Unemployment is a very common phenomenon not only in countries that have embarked on the path of market reforms, but also in many countries with market economies, especially in Western Europe, where it is quite high and exceeds 10% of the working-age population.
The phenomenon of unemployment in the country characterizes the degree of efficiency of employment of the population, since it indicates the presence of a part of the labor force - willing, actively looking for a place to apply their abilities, but at a certain stage to no avail. Unemployment, as an official phenomenon, was recognized in the Russian Federation in 1991,after adoption Federal Law No. 1032-1 of April 19, 1991 "On employment in the Russian Federation", which defined the categories of citizens who are recognized as unemployed.
Thus, we can conclude that all of the above forms of manifestation of macroeconomic instability are a very important factor affecting the economic climate of the state, therefore, each of these forms of manifestation of macroeconomic instability needs more detailed description studying. But, proceeding from the fact that the most important forms of manifestation of macroeconomic instability are inflation and unemployment (which has already been mentioned), in the future only these forms of manifestation of macroeconomic instability will be studied in more detail, but first we will pay attention to such a concept as the cyclical development of the country's macroeconomics. ...
Subject: Economics
RDKR-11 group
Olga Nazaralieva
Anna Klycheva
Anna Prants
unemployment and inflation
Teacher:
Liventseva O.
Introduction
If an ideal economy existed, then the volume of national production would grow constantly and evenly, prices would not change, everyone who wants to work would have a job. This situation does not automatically arise. Every country has local instability: output, prices and employment fluctuate; there is a problem of unemployment and inflation.
What is Macroeconomic Instability?
Macroeconomic instability is fluctuations in economic activity (economic cycles), the emergence of unemployment, underutilization of production capacities, inflation, shortages state budget, deficit of the foreign trade balance. It is characteristic of a market economy. Macroeconomic instability in many ways reduces the efficiency of the economy. For example, unemployment means a shortfall in production, and an increase in unemployment by 1% means a decrease in economic growth rates by 2-3%.
Economic Cycles
Economic cycles are time intervals between two qualitatively identical states of the economic environment. The economic situation is understood as the direction and nature of changes in the main economic indicators.
The market economy of all countries of the world is characterized by cyclical development: after growth, there is always a recession.
Schumperer Cycles
Short 3-year cycle - associated with changes in investment
The average cycle of 8-11 years is associated with innovations: the creation of radar installations, televisions, etc.
A long cycle (Kondratyev cycle) of 40-60 years is associated with the most important inventions and innovations: electrification, etc.
Factors affecting cycle times:
Time factor: the time of renewal of the fixed capital,
Market dynamics,
State intervention in the economy
Low investment: low investment leads to low productivity. A rapid inflow of investments (from abroad) can lead to overheating of the economy: prices and incomes rise rapidly. Wages are growing, and there are not enough skilled workers.
Impact on economic sectors: All sectors of the economy are affected in different ways and to varying degrees by the economic cycle. The cycle has a stronger effect on output and employment in industries producing investment durable goods than industries producing non-durable goods.
When the economy begins to experience difficulties, manufacturers often stop buying more modern equipment and building factories. Given such a conjuncture, there is simply no point in increasing stocks of investment goods.
Budget cuts: when family budget it is necessary to reduce, first of all, plans for the purchase of durable goods, such as household appliances and cars, are crumbling. Non-durable consumer goods (clothing, food) cannot be put off for long. The quantity and quality of these purchases will decrease and deteriorate, but not to the same extent as for durable goods.
Decreased demand: Most investment and durable goods industries are highly concentrated when relatively small numbers dominate the market. large firms... As a consequence, such firms have sufficient monopoly power to counteract lower prices over a period of time by limiting output due to falling demand. Therefore, a decrease in demand affects mainly production and employment.
GDP volume;
Employment rate;
The level of utilization of production facilities;
The amount of profit of entrepreneurs and a number of other parameters.
What is unemployment?
Unemployment is a cyclical phenomenon, expressed in the excess of labor supply over demand.
According to The International Organization labor, the term "unemployment" means the presence of persons of working age who do not have a job, but are able to work and are looking for work in this period time. The number of "job seekers" includes persons registered at the labor exchange as unemployed. V different countries the age indicators of the unemployed differ significantly, but, as a rule, they include young people: 15-55 years old and people of retirement age: 55 and above.
Types of unemployment:
Voluntary unemployment (frictional and institutional)
Forced (cyclical and structural)
Frictional unemployment - associated with the voluntary abandonment of one job in search of another. Usually it is a temporary loss of work due to a change of place of residence by persons who have a job, or the inability to find employment for those who are looking for work for the first time.
Institutional unemployment may arise as a consequence of the country's existing minimum wages, about unemployment benefits.
Cyclical unemployment is generated by the cyclical nature of the development of the market economy, that is, the alternation of periods of ups and downs in production. The general economic downturn leads to job loss and the inability to find one in any specialty.
Structural unemployment is also a temporary loss of a job by a part of able-bodied population, but due to changes in the structure of production associated with changes in technology. These changes make it necessary to retrain personnel to acquire new professions. The withering away of old industries with structural changes in the economy causes the layoff of part of the labor force.
For specific industries (for example, Agriculture, construction) is characterized by seasonal unemployment caused by fluctuations in the demand for labor in different periods of time.
With hidden unemployment, as a result of a decline in production, the labor force is not fully utilized, but also there is no dismissal of the labor force.
"Natural unemployment"
"Natural unemployment" - unemployment, which includes frictional and structural unemployment. The level of "natural" unemployment at full employment is equal to the sum of these two types of unemployment, and cyclical unemployment in this case it is equal to zero.
Natural unemployment rate in Estonia, USA and Sweden:A. Okun's law
Each percentage of unemployment above the natural level gives 2.5% loss of potential GNP
If the actual unemployment is below the natural level, then this leads to an increase in prices.
That. Too high or low level unemployment.
Maintaining unemployment at a natural level indicates the effectiveness of the development of the state's economy. Since in a market economy there is no mechanism that ensures permanent full employment, the problem of employment is an object state regulation.
What is inflation?
Inflation is a subtle social economic phenomenon generated by imbalances in reproduction in various areas of the market economy. At the same time, inflation is one of the most pressing problems modern development economies in almost all countries of the world.
As an economic phenomenon, inflation has existed for a long time. It is believed that its appearance is connected almost with the emergence of money, with the functioning of which it is inextricably linked.
Inflation, although it manifests itself only in the growth of commodity prices, is not a purely monetary phenomenon.
The essence of inflation is that National currency depreciates in relation to goods, services and foreign currencies maintaining the stability of their purchasing power. Some Russian scientists add gold to this list, giving it, as before, the role of a universal equivalent.