Mar 14 2015

An economic cycle and cyclical theory


     The economy of any country and the world economy in general are constantly changing. Economists have studied such changes over a long time and eventually came to the conclusion that these changes in the economy have certain tendencies. So the doctrine of economic cycles there was established taking into account such researches. Let’s look at the general features of cyclical economy today.

Let’s define economic cycle.

Economic cycle definition.

An economic cycle is a set of specific periods (phases, stages) in the economy.

Phase of the economic cycle definition.

The phase of the economic cycle is a time period during which there is a set of economic processes with some homogeneous orientation.

Most scholars have identified the following key economic cycle stages: crisis, depression, recovery, growth.

These four stages of the business cycle pass in that order according to economic theory.

Let’s briefly consider each of them.

1. Crisis
2. Depression
3. Economic recovery
4. Economic growth


This phase separates economic cycles. Some scholars argue that economic crisis is the latest phase of the previous cycle, some say that it is the first phase of the next cycle.

Industrial production and trade turnover volumes reducing, employment falling, rising interest rates on loans occur during the crisis.


Depression follows the crisis. Industrial production is very low during the depression, but stopped decreasing. Business activity is also very low at this time.

Economic recovery.

Economic recovery begins when the level of business activity starts to increase. The level of investment also starts to increase at this time, as a result production and turnover begins to grow, which in turn reduces unemployment and increases state budget revenues. We can say that business cycle recovery definition can be characterized with pre-crisis level of achievement economics indicators.

Economic growth.

Economic growth begins when economic indicators after a phase of recovery begins to exceed the pre-crisis mark.

The theory of economic cycles can be briefly described in this manner.

However, in the real economy everything is not so clear. For example, only economic growth can be observed in developed countries for a long time. Long-term depression without recovery can be observed at the same time in less developed countries.

We can certainly conclude that the economic cycles have a different duration and phase of the economic cycle also have different duration.

That’s right, but there are a number of factors that affect the economic situation in the country in fact. We can make a conclusion that one or another phase of the cycle may be a result of these factors influence.

These factors include such factors as:

  • State financial and economic policy.
  • International financial and economic policy.
  • Level of state economic integration into the international economic system of world global economy.
  • Non-economic factors.

We can see that the above-mentioned factors may not only determine the current phase of the economic cycle, but also have influence on the duration of the cycle or start a new one. Also it is interesting question about the level of influence of these factors on individual subjects.

Features of influence of each of these factors groups on the economic system we will consider in future articles.

1 comment
  1. prof. Miston

    We must admit that economic cycles are very interesting phenomenon in world’s economy

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