Economic stages are constantly recurring periods in the course of market economy development. Economic growth is always accompanied by the intermittent fluctuations in the economic activity: economic upturns and downturns in production, investments, income, prices, employment, interest rates, and rates of securities. There are four consecutive stages of the economic cycle: recession, trough, expansion, and peak.
Expansion follows a trough. Expansion is a period characterized by the increase of production capacities and employment. Inflation rates depend on the economic growth: the economic growth generates higher inflation rates.
Peak is the highest point of the economic cycle. During this stage, the rate of cyclical unemployment goes to zero or is zero. The economy reaches the highest production rate as all labor and capital resources are employed in the production process. Inflationary pressure, as a rule, increases.
Recession is a period characterized by the decline in the production output and economic activity as well as by the increase of unemployment. Recession is a period in which there is a decline in economic activity over the past six months.
Trough is the "lowest point" in the production output and employment. Trough marks the end of the recession and lasts for a short period of time. However, there were exceptions to the rules. For example, economic crisis of 30-s lasted for about 10 years, despite the constant fluctuations in the business activity.
Long economic cycles are cycles that last more than 10 years. Long cycles are very often associated with the names of famous economists and statisticians:
Economic cycles vary in length, minimum depth, maximum height, and the duration of stages. Modern economic policies are aimed at smoothing economic fluctuations. Periods between crises become longer and their depth and negative influence decrease. Crisis, in increasing frequency, gives way to a mild downturn called recession.
Besides the economic cycle, there are other factors affecting the state of economy. The most significant factors affecting the state of economy are long-term trends and seasonal fluctuations. Seasonal fluctuations have the most noticeable effect on economic cycle in certain periods of the year such as Christmas and Easter when the business activity increases very rapidly. Automobile industry, agricultural industry, and building industry are subject to the considerable seasonal fluctuations. Shaped during several centuries trends determine the decrease or increase in the long-term economic growth rates.
The economic cycle is very often associated with changes in the production output. Experts believe that the production level, expressed in GDP, is the best measure of the state of economy. It is important to note that during the expansion period the growth of GDP is not so much important as the speed of this growth. Negative GDP growth for the past six months indicates the recession. Positive GDP growth indicates the expansion in the country.
Cycles of economic activity belong to the economic cycles up to 10 years. They occur alongside with the 50/60 year cycles called the Kondratiev cycles after the Russian economist who described them. Long cycles consist of two waves expressing the changes in economic conditions: down-wave and up-wave. Each wave lasts about 30 years. Long economic cycles are based on the technical progress and structural changes in production process. The transition to the post-industrial society in the developed countries coincides with the fifth wave of the Kondratiev cycle. Its upward phase is associated with economic restructuring based on high technologies.