Macroeconomic instability, economic cycles, unemployment and inflation - abstract. Cyclicality, unemployment and inflation

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Lecture No. 6

1. Cyclicality as a form of economic development

1. The main macroeconomic indicators characterizing sustainable development economic system, are the volume of national production, inflation and unemployment levels. These are the main economic indicators in a healthy economy; their actual state is characterized by their instability and fluctuation.

– this is an unstable multidirectional variability of the main macroeconomic indicators, characteristic of certain periods of time. Changes in production volumes are also characterized as changes in the degree business activity, that is, the amount of goods and services created by the country’s economy.

Cyclicality- This is a general form of movement of the world economy, which is part of the self-regulation mechanism of the market. Maintaining stability in the economy, smoothing economic fluctuations, achieving higher growth rates is one of the most important tasks of regulating the national economy.

Economic cycle– is a set of regularly repeating certain states national economy– expansion and reduction of production volumes. It is also called the business cycle or market cycle.

Causes of economic cycles:

1- External:

Population changes

Political, military and other emergencies

The emergence of revolutionary inventions

2- Internal:

Instability of investment expenses

Volatility in consumer spending

State activities in the field of economic regulation

Any economic cycle has 4 stages

Recession– characterized by a decrease in production volumes, an increase in unemployment, a decrease in production capacity utilization, and a decrease in prices. Minimum volume of production, employment, wages, continued decline in prices.

Depression– minimum volume of production, employment, wages, continued decline in prices.

Revival– a slight increase in production volumes, entrepreneurial activity, price levels, and a reduction in unemployment.

rise– exceeding the pre-crisis level of national production, reducing unemployment, increasing income and investment.

Depending on how the value of economic parameters changes during the cycle, they are divided into:

1- procyclical – which increase during the rise phase and decrease during the decline phase.

2- countercyclical – the values of which change in the opposite direction with the phases of the economic cycle.

3- acyclic – parameters whose dynamics are not related to the phases of the economic cycle.

By duration economic cycles are divided into:

1) Short – associated with updating the equilibrium on consumer market. They are based on processes in the monetary sphere; small cycles are separated by monetary cycles.

2) Average – associated with changes in demand for means of production. Their material basis is the need to renew fixed capital.

3) Large – associated with scientific and technological progress, the emergence of new technologies and infrastructure facilities.

Main types of cycles:

· Kitchen (inventory) cycles – 2-4 years – the reason is an imbalance in the monetary system.

· Jugler cycles (business cycle, industrial cycle) – 7-12 years. Reason: the need to update fixed capital.

· Blacksmith cycles (construction cycles) – 16-25 years. Reason: the need to update the passive part of the means of labor.

· Kondratiev cycles (large cycles of market conditions) – 40-60 years. They are based on market fluctuations in the economy. They consist of 2 phases:

Rise or expansion 25-30 years. Long term growth, which arises on the basis of scientific and technological revolution.

Recession or contraction 20-25 years. The previous structure of the economy does not meet the needs of new technologies, but is not yet ready for fundamental changes. During this period, small and medium cycles become acutely evident.

· Forrester cycles – 200 years. Basis: the emergence of new types of energy and materials.

· Toffler cycles – 1000-2000 years. Basis: development of civilization.

Modern models economic growth– oscillation models economic activity society in time:

1- Samuelson-Hicks model, Teves model - a model of the economic cycle based on the interaction of the multiplier and the accelerator.

2- Koldor model – based on the nonlinearity of the saving function.

3- Gaming – based on game theory.

In addition to cyclical ones, there are other types of economic fluctuations. For example, seasonal fluctuations, structural crises, as well as crises of overproduction and underproduction.

Crises of overproduction are associated with the overproduction of goods and services in comparison with effective demand. Causes a fall in the price level, a reduction in production volumes, and an increase in unemployment.

Crises of underproduction are of a healing nature, accompanied by the renewal of fixed capital and an increase in the level of production.

The structural crisis is associated with imbalances in the development of certain areas and sectors of the national economy. It is long-lasting and does not fit within one production cycle. It can be energy, food, raw materials, environmental.

2. Unemployment: forms, theories, types

Unemployment is a state of forced unemployment that arises as a result of an imbalance between the demand and supply of labor.

Population:

1- economically active:

Employed (having a job that generates income in any form)

Unemployed (actively looking for work and ready to start work at any time)

2- economically inactive:

Persons under 16 years of age

Pensioners, students, housewives

Persons in correctional institutions and psychiatric clinics.

The natural rate of unemployment is determined by averaging the actual unemployment rate. For the previous and subsequent 10 years.

5-6.5% - natural unemployment rate - 1.2 - 1.6 million unemployed. The absence of cyclical unemployment and maintaining the natural unemployment rate of 5-6.5% is “full employment.”

There are 3 main types of unemployment:

· Friction– is associated with voluntary changes of jobs by employees and periods of temporary layoff.

· Structural– is associated with technological shifts in production, changing the structure of demand for labor. It is more complex than the frictional one, as it requires government intervention in the form of organizing a flexible system for retraining workers, taking measures for the regional location of new production, and creating conditions for interregional migration labor force.

· Cyclic– unemployment generated by the general economic downturn, one of the consequences of the reduction in GDP.

Cyclical unemployment is equal to actual unemployment minus natural unemployment.

"Full employment"- this is the absence of cyclical unemployment and maintaining its level at the level of natural unemployment (5-6%).

There are also:

Open and hidden unemployment

Short term and long term

Regional

Seasonal

Permanent.

The most severe and protracted form of unemployment is considered cyclical. The economic losses from this type of unemployment can be calculated in accordance with Okun's law.

According to Okun's law, an excess of actual unemployment over the natural level by 1% leads to a decrease in GNP compared to the potential level (at full employment) by an average of 2.5%.

, Where

Y – actual level of GNP

Y* - potential level of GNP (at full employment of resources and population)

Empirical coefficient of sensitivity of the GNP level to the level of cyclical unemployment

U – actual unemployment rate

U* - natural unemployment rate (5 – 6.5%)

Causes of unemployment:

According to the classical theory of employment (Riccardo, Mill, Marshall), the cause of unemployment is too high a wage level, which creates an excess supply of labor. The free play of market forces will ensure the necessary coordination in the field of employment.

Keynesian employment theory rejects the assumption that the market is capable of providing full employment. The main reason for unemployment is low demand. Remedies for unemployment: expansionary state policy based on the use of fiscal instruments, that is, by changing taxes and budget expenditures the state can influence aggregate demand and the unemployment rate.

The monetarist theory of employment lists excessive government intervention, distortion of the market mechanism and interference of trade unions as the causes of unemployment. Remedies for unemployment: freeing the market from unnecessary government intervention in the field of prices and wages, creating a flexible education system, stimulating interregional flows of labor.

The costs of unemployment can be:

Individual

Public

Individual costs:

Decline in population income

Decline in economic well-being

Loss of qualifications

Psychological problems

Social costs:

Underproduction of GDP

Certain social tensions

Complicating the crime situation

Economic losses of society are measured by the cost of underproduced goods and services, reduction in tax revenues, increased costs of paying benefits and maintaining employment and social security services.

Social losses from unemployment include:

Deterioration of demographic indicators

Outflow of qualified workers abroad

3. Inflation: essence, causes, consequences

Inflation is an increase in the average or general price level in the economy, accompanied by a depreciation of paper money (devaluation).

The inflation rate is calculated:

Average price level in the current and last year, respectively.

The reverse process of inflation is deflation - a decrease in the price level.

Disinflation– reduction in inflation.

Stagflation– inflation, accompanied by stagnation of production and high unemployment (simultaneous increase in prices and unemployment).

Inflation shock– a one-time increase in the price level, which becomes an impetus for inflation.

The “rule of 70” applies to inflation measurements, according to which, by dividing 70 by the annual rate of price growth, you can determine the number of years during which the price level will double.

Types of inflation:

1) Moderate – characterized moderate growth prices up to 10% per year.

2) Galloping – 10-200% per year.

3) Hyperinflation – up to 1000% per year.

Types of inflation:

Open (demand, holdout and structural inflation)

Hidden or suppressed - arises as a result of a commodity shortage, accompanied by the desire of the state to maintain the previous price level.

Causes of inflation:

1- Demand inflation– occurs under conditions of full employment and full utilization of production capacity, when an increase in demand is not accompanied by an elastic increase in supply and only prices rise.

Causes of demand inflation:

Non-monetary

a) an increase in government orders

b) expansion of demand for means of production

c) increase in income as a result of concerted actions of trade unions

d) change in the assortment structure of AD

Monetary

a) increase in nominal cash balances

b) an increase in the speed of money turnover caused by inflationary expectations

2- Cost inflation– manifests itself in an increase in production costs, outpacing the increase in income and labor productivity.

Causes of supply inflation:

Oligopolistic pricing practices and government policies

Rising prices for raw materials

Increase in tax burden

The fight for higher wages

The combination of demand-side inflation and supply-side inflation causes an inflationary spiral.

1- an increase in prices as a result of an increase in wages without an adequate increase in production.

2- rising cost of living, demand for higher wages.

Consequences of inflation:

1) Declining living standards of the population

2) Tanzi-Oliver effect - deliberate delay of application tax payments to the state budget

3) Redistribution of income between the private sector and the state, labor and capital, debtors and creditors

4) Reduction in production volumes as a result of reduced incentives to work

Anti-inflationary policy is a set of state methods aimed at establishing correspondence between growth rates money supply and production of goods and services.

Adaptive policy(inflation no more than 20-30%) - manifests itself in adaptation to the conditions of inflation, in mitigating its negative consequences.

Basic methods:

Stabilization of inflation expectations

Gradual restriction of money supply

Indexation of monetary income of the population

Freezing prices and wages

Active anti-inflationary policy– is based on a sharp reduction in the growth rate of the money supply and is especially appropriate during hyperinflation.

Basic methods:

Prohibition of emission financing of the state budget

Carrying out monetary reform confiscatory nature (denomination)

Exchange rate regulation

Privatization

Demand reduction

Reduced taxes on enterprises and so on.

4. The relationship between inflation and unemployment. Phillips curve

In conditions of approaching economic potential an alternative arises between employment growth and inflation growth. An increase in employment and a decrease in unemployment is accompanied by an increase in inflationary demand, as the amount of unused resources in the economy decreases and production must be expanded due to increases in wages and prices for investment goods. Reducing demand-side inflation can only be achieved by limiting employment and increasing unemployment. Thus, in the short term, an inverse relationship is found between the levels of inflation and unemployment, defined as the Phillips curve.

At any point in time, the government managing aggregate spending can choose on the Phillips curve a certain combination of inflation and unemployment rates for the short-term time interval. This choice depends on the expected rate of inflation: the higher the expected inflation, the higher the Phillips curve will be. The choice of economic policy in this case will be difficult, since the actual inflation rate will be higher for any level of unemployment.

The Phillips curve equation is:

Where and are the actual and expected inflation rates, respectively;

U and u* are the actual and natural levels of unemployment, respectively;

External price shock;

Empirical coefficient.

In accordance with the Phillips curve, a damage coefficient is derived, showing by how many percent employment will decrease if inflation decreases. The higher the coefficient, the more difficult it is for the population to contain inflation.

Kuscherba=

Macroeconomic instability: cyclicality, unemployment, inflation - 4.3 out of 5 based on 6 votes

Cyclicality of economic development.
Unemployment and its types. Consequences of unemployment.
Inflation: definition, principles, types, consequences.

1. Cyclical nature of economic development

A market economy is characterized by macroeconomic instability, expressed in periodic ups and downs in economic activity, which shapes the economic cycle. Macroeconomic equilibrium acts as a desired state, as a trend, an ideal towards which the real economy strives. The functional forms of instability are cyclical declines in production, unemployment and inflation.

An economic cycle is a time interval between two qualitatively identical states of economic conditions.

Reasons for cyclicity:
External or external:
wars, revolutions, major social, political, demographic natural shocks).
Internal or internal:
physical contribution of fixed capital,
changes in consumer and investment spending,
change in government policy.
Synthesis of external and internal causes
External causes produce the initial impulses to start the economy, and internal factors turn them into a cycle of fluctuation.

The cycle and its phases.

The graph shows a 4-phase business cycle model. It distinguishes the following phases:
I - economic recovery.
The national product, the volume of investment, the capital stock of the economy are growing, inventories of unsold products are decreasing, unemployment is decreasing and inflation is increasing.
The phase ends with point A (peak, boom point), at which full employment is observed, and the price level, interest rate and wages are at their maximum.
II - recession (crisis) of the economy.
Fall in production growth, rising unemployment, reduction in investment, prices and wages).
III - depression.
National income and GDP continue to decline. At point B (economic bottom), the unemployment rate reaches a maximum, the price level, wages and interest rates are minimal, and the volume of investment approaches zero.
IV - revival.
Production volume and GDP begin to grow. Unemployment decreases, investment volumes, interest rates and price levels increase.

Types of cycle (classification according to certain characteristics).
By duration
a) short-term (3.4 years)
b) medium-term (up to 20 years)
c) long-term (40-60 years).

By activity environment
a) industrial
b) agricultural

According to the specifics of manifestation
a) oil
b) food
c) energy
d) raw materials
e) economic
e) currency

By spatial ghost
a) national
b) international.

2. Unemployment and its types. Consequences of unemployment

From the point of view of employment and unemployment, the country's population can be classified according to the following scheme:

The institutional population is people who have not reached working age, have retired, are in hospitals, etc.
The non-institutionalized population is the working-age population.
Economically inactive population- this is the working-age part of the population that is not employed and is not looking for hired work.
The economically active population is the employed and the unemployed.
Busy people have a job.
A person is considered unemployed if he does not work anywhere, but is actively looking for work.

The unemployed do not include:
people of retirement age;
carers at home for children;
stopped looking for work;
not working for any reason not stated above.

Types of unemployment:
By duration of existence:
Short term;
Long-term;

Depending on the nature of the manifestation:
Open;
Closed (hidden).

Ratio of unemployed to employment:
Valid;
Fictitious.

Types of unemployment:
Frictional - associated with searching for or waiting for work.
Structural - associated with the need to change a specialty or preparation, with additional training.
Natural is the sum of structural and frictional (as a rule, it is 5 - 6%, present in any market economy)
Cyclical - associated with short-term economic cycles, arises due to the fact that a reduction in aggregate demand for goods and services causes a decrease in employment and unemployment demand.

The unemployment rate is the share of unemployed people in the total number of economically active population(labor force).

Where:
Z - busy;
B - unemployed;
RS - labor force, RS=Z+B

Consequences of unemployment
Economic.
Part of the potential volume of production of goods and services is lost without compensation; the production capabilities of the economy are not fully realized.
There is a certain economic relationship between the unemployment rate and the volume of GDP produced, known as Okun's law. This law states that an excess of the actual unemployment rate by 1% above its natural level leads to a decrease in actual GDP from 2x to 3x%.
Okun's law reflects the following equality:

Where:
Y* - potential GDP;
Y - actual GDP (per at the moment);
β - Okun's coefficient or empirical coefficient of sensitivity of GDP to the dynamics of cyclical unemployment (can be from 2x to 3x%, usually 2.5% is accepted);
u is the actual unemployment rate (at the moment);
u* is the natural rate of unemployment.

Social:
1.loss of qualifications or self-esteem
2. complete and partial loss of income
3.decrease in living standards.

Moral and ethical.

Regulation of unemployment.
in social policy.
It is planned to provide assistance to the unemployed in order to maintain their standard of living.
in macroeconomic policy.
Providing assistance to the unemployed involves the implementation of monetary and fiscal measures to reduce unemployment.
employment policy.
It involves the creation of new jobs, a personnel retraining system, and employment centers.

3. Inflation: definition, principles, types, consequences

Inflation is a situation in the economy in which there is an increase in the price level and (or) depreciation of the money supply in the economy.

Types of inflation:
Hidden (suppressed).
This inflation is associated with a shortage of goods and services, or with a deterioration in their quality, or with the establishment of upper price limits by the state.
Open inflation.
Characterized by an increase in the price level and does not destroy market mechanism.

Open inflation comes in the following forms:
- inflation on the demand side (buyer inflation). It is characterized by an excess of aggregate demand compared to aggregate supply, i.e. the economy wants to consume more than it produces.
-inflation on the supply side (seller inflation). Characterizes an increase in the price level due to an increase in production costs, i.e. raw material costs, energy costs.

Inflation classification:

1. depending on the tempo:
1.moderate or creeping (~10%)
2.galloping (~200%)
3.hyperinflation (from several hundred to several thousand or more than 200%).
2. according to the degree of synchronicity:
1. balanced
Accompanied by a uniform, moderate rise in prices.
unbalanced
Accompanied by an uneven, abrupt increase in prices.
3. by degree of predictability:
1.expected
2.unexpected.

Causes of inflation:
Policy central bank.
Budget deficit.
Militarization of the economy
Market monopolization:
Monopolization of the market by the manufacturer
Monopolization by the trade union
High tax penalties
Public Policy Uncertainty
External economic factors

Consequences of inflation:
Deformation of the market pricing mechanism
Redistribution of income and wealth
Decline in real income of the population
Depreciation of household savings
Deterioration of living conditions of some social groups
Destabilization of the economy

In conditions of inflation, not all prices change equally, since the rate of increase in prices for consumer goods always differs from the rate of increase in prices for industrial goods.
The inflation rate is defined as the ratio:

Where:
Рit - price level in the current period;
Pi0 is the price level in the base period.

The rate of inflation varies depending on the changing phases in economic development. Inflation is replaced in the depression stage and at the lowest point. Inflation accelerates during the economic recovery phase.
Inflation starts at money market, and then gradually everything else happens (product market, labor market, etc.)

The relationship between inflation and unemployment. Phillips curve.

In the short term, there is an inverse relationship between inflation and unemployment. Point 1 is characterized by high unemployment and low inflation.
Point 2 is characterized by high inflation and low unemployment.
In the long term, with high unemployment, prices also begin to rise.

In previous topics we talked about macroeconomic equilibrium, however, macroequilibrium is the exception rather than the rule. Macroeconomic instability is more common. The economy develops cyclically.

Under economic cycle refers to periodic fluctuations in the level of business activity, which are reflected in changes in real GNP (GDP). The classical (business) cycle includes the following phases:

crisis (recession) characterized by a fall in production, unemployment, the formation of inventories, a fall in prices and an increase in rates bank interest;

depression– saved high level unemployment, but the fall in prices stops, loan interest rates decrease, inventories stabilize, and investment begins;

revival accompanied by an increase in the level of production, a slight reduction in unemployment and an increase in consumer demand, and an intensification of the investment process;

rise- this is an excess of the pre-crisis level of production, full employment, an increase in the price level and the creation of conditions for the emergence of a new crisis.

There is no clear reason for the emergence of cyclicality and crises in the economy.

Highlight endogenous and exogenous causes, the first includes shortcomings in the organization of production, management, internal conflicts, etc., the second - trends and strategies of macroeconomic development, global competition and global economic conditions. Cyclicality and crises can be provoked objective(cyclical needs for modernization and restructuring) and subjective reasons(mistakes, voluntarism in management, natural changes).

Cyclicity can be characterized by such properties as multidimensionality of forms, spiral development, search for new forms of smoothing, renewal and growth.

The following are known types of economic cycles :

– Kondratiev cycles (long waves), lasting 40-60 years, the main driving force of which is structural restructuring;

– Kuznets cycles (construction cycles) are caused by shifts in the reproductive structure of production; duration about 20 years;

– Dzhaglyar (Zhuglyar) cycles are associated with a variety of monetary factors (7-11 years);

– Kitchin cycles (short-term cycles) are caused by fluctuations in inventories and values at enterprises; can last 3-5 years;

– private business cycles (from 1 year to 12 years) are caused by fluctuations in investment activity.

The consequences of macroeconomic instability are a decline in production, unemployment and inflation

Unemployment– a complex and multidimensional phenomenon of the labor market and the economy as a whole. It is characterized by the fact that the working-age adult population currently does not have a job, enters the market and is actively searching for it.

Working population– these are all those who, due to age and health conditions, are able to work. There is a population division:

1) for those employed in market or non-market sectors of the economy;

2) the institutional population, focused on non-market structures (on such state institutions as the army, police, state apparatus) and the non-institutional population (the rest of the adult population).

Included employed population include those who are oriented towards market structures of the economy - these are people who have jobs, as well as people employed part-time or weekly.

TO labor force includes both employed and unemployed; for the latter, the main criterion is the requirement to find a job. Those who are unemployed and do not meet job search requirements are classified as persons not in the labor force .

The state of employment and unemployment is characterized by the following indicators:

– non-institutional population (N NN);

– number of employees (N Z);

– number of unemployed (N B)

– number of persons not included in the labor force (N LDC).

In Western practice, the level of unemployment is specified by indicators of its distribution and duration. Indicator spread of unemployment characterizes the unemployment coverage of the labor force. Indicator duration of unemployment characterizes the average duration of one case of unemployment. Thus, in the United States, short-term unemployment is less than five weeks, and long-term unemployment is more than six months.

The following are distinguished: types of unemployment :

1. Friction Unemployment is associated with a certain amount of time spent searching for a new job. At the same time, the frictional unemployed does not lose his professional skills, and they can be in demand at any time. The duration of such unemployment is from 1 to 3 months. Level reduction frictional unemployment possible and effective as a result of well-established work to inform the population about available vacancies in the labor market.

2. Structural unemployment is associated with technological changes and shifts in production, which entail changes in the structure of demand for labor. There is a professional and qualification discrepancy between existing and newly created jobs and workers. This requires either territorial and sectoral movement of labor, or training and retraining of personnel.

The duration of structural unemployment is usually more than six months in a row, and affects workers with low qualifications or outdated professions, and also covers the population of economically backward regions. Therefore, structural unemployment is closely related to regional and technological unemployment, the latter can be considered as a type of structural unemployment, since it arises as a result of the introduction of new equipment and technology and leads to the replacement of people with machines.

3. Seasonal unemployment is due to seasonal fluctuations in the production of certain industries, for example, agriculture, construction, crafts, in which sharp changes in the demand for labor occur during the year. This unemployment is not dangerous for the economy; it is natural, predictable and manageable.

4. Regional unemployment is the result of a mismatch between the demand and supply of labor in this region. The reason for this unemployment is the uneven socio-economic development of the territories. It occurs, as a rule, in “labor surplus” regions; resolution is possible through the implementation of federal and regional projects to create new jobs in such regions, as well as through the migration of the working population. An example is the Ivanovo region, in which a certain part of the working-age population works in Moscow and St. Petersburg.

5. Cyclic unemployment is caused by cyclical fluctuations in output and employment and occurs during economic downturns, is associated with a decrease in real GNP and the release of part of the labor force. The most dangerous unemployment for society.

In addition to the above types of unemployment in the labor market, there are the following: forms of unemployment :

– valid unemployment, characteristic features which is the ability to work and the desire of the employee to work, but for certain reasons does not have a job;

– fictitious unemployment, which is typically characterized by reluctance to engage in work for one reason or another;

– voluntary unemployment, when people themselves voluntarily enter the labor market and become unemployed for one reason or another;

– forced unemployment (the concept was introduced by J.M. Keynes) arises as a result of a lack of effective aggregate demand;

– repeated (recurrent unemployment) and " stagnant" unemployment, taking into account persons who have despaired of finding work and who have completely dropped out of the labor force.

If the actual level of unemployment exceeds its natural level, then the country receives less of its GDP. For information: the concept of the natural rate of unemployment was introduced by neoclassics (in particular, M. Friedman), who considered unemployment a necessary feature of a mobile and flexible labor market. Natural rate of unemployment corresponds to the state of full employment in the economy (potential GNP) and in total is equal to frictional and structural unemployment (4-6%).

American economist A. Okun formulated a law that allows us to calculate the loss of goods and services as a result of rising unemployment.

According to Okun's law , an excess of the actual unemployment rate by 1% above its natural level leads to a decrease in actual GDP compared to the potential (at full employment) GDP by an average of 3%.

In macroeconomics under inflation refers to an increase in the general price level. Although you can find other definitions of inflation that relate largely to microeconomic analysis: a decrease in the purchasing power of money; excessive increase in the amount of paper money in circulation; etc. Along with inflation, the concepts disinflation– a slowdown in price growth, and deflation - a process that is the opposite of inflation.

The causes of inflation are extremely diverse:

– ill-conceived emission policy of the central bank;

– militarization of the economy;

– monopolization of society;

– unreasonable tax policy;

– rising prices on world markets;

– adaptive inflation expectations; etc.

Inflation is measured using price indices.

Price index(Ỉ) is the price ratio t year (P t) to the price of the base year (P b), i.e.

Ỉ = (P t / P b) * 100%

There are the following types of price indices: index consumer prices, wholesale price index, export and import price index, agricultural producer price index, construction price index, freight tariff index, etc.

Macroeconomic theory, when determining the inflation rate, gives preference to the consumer price index - this is the ratio of the price of the consumer basket in t – m year to its price in the base year. IN consumer basket households include basic food products, a set of basic non-food products (clothing, shoes, household goods) and basic services (medical, transport services, communication, recreation, culture, personal hygiene).

Taking into account the rate of inflation, the following types of inflation are distinguished:

1) normal inflation – at an inflation rate of 3-3.5% per year;

2) moderate (creeping) inflation – at a rate of up to 10% per year;

3) galloping inflation – at a rate of 20–200% per year;

4) hyperinflation – at a rate of 50% per month or more for more than six months. With such inflation, the value of money falls so quickly that it no longer fulfills its main functions, and barter increases.

From the point of view of the ratio of price increases for various product groups (according to the degree of their balance), they distinguish balanced and unbalanced inflation. With a balanced system, the prices of various goods remain constant in relation to each other; with an unbalanced system, the prices of various goods constantly change in relation to each other, and in different proportions.

From the point of view of inflation predictability, there are expected and unexpected inflation. The first can be predicted and predicted in advance; the second – occurs spontaneously, sporadically, a forecast is impossible.

There are two types of inflation: open And depressed.

Open inflation is inherent in markets where free prices operate; it deforms but does not destroy the market mechanism. Open inflation can occur in the following forms:

1) demand inflation;

2) cost inflation;

3) structural inflation.

Demand inflation occurs as a result of aggregate demand significantly exceeding the current production capacity of the economy. In a general sense, demand-side inflation means an imbalance between aggregate demand and aggregate supply. Graphically, it can be represented as a shift of the aggregate demand curve to the right.

Cost-push inflation (supply inflation) arises as a result of an increase in costs, for example, due to an increase in wages that is disproportionate to the growth in labor productivity. Graphically, this type of open inflation corresponds to a shift in the curve aggregate supply to the left, which can lead to phenomena such as stagflation ( economic stagnation with simultaneous inflation) or slumpflation (a combination of inflation and a sharp economic downturn).

Structural inflation is caused by inter-industry imbalance of the economy, when the goods of some industries are washed out of the market, which leads to the formation of chronic unsatisfied demand. At the same time, the resulting voids are filled with goods of not very high quality, but expensive for the majority of consumers. There is an asymmetry in the assortment structure, accompanied by rising prices.

At suppressed inflation The state, concerned about rising prices, is starting to fight this phenomenon. It establishes strict administrative control over prices and incomes, freezing them for a certain period. At the same time, the state directs its efforts not to eliminating the causes, but to combating the consequences - rising prices.

Socio-economic consequences of inflation:

– a decline in the standard of living of the population (decrease in current real incomes, depreciation of personal savings);

– decline in social production (incentives to work disappear, the market mechanism of self-regulation and movement of capital is disrupted, the outflow of capital from high-cost industries, the formation of shortages and deferred demand among consumers, the emergence of black markets, the criminalization of the economy);

– redistribution of income and wealth;

– price lag of state-owned enterprises from market prices;

– hidden state confiscation of funds through taxes;

– accelerated materialization of funds;

– instability economic information;

- fall in real interest, etc.

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LECTURE 4. Macroeconomic instability: unemployment and inflation

One of the most important patterns in the functioning of a capitalist market economy is macroeconomic instability, manifested in periodic fluctuations in total production, employment (unemployment) and the price level. Unemployment and inflation, being among the most important macroeconomic problems, are the most striking manifestations of macroeconomic instability. At the same time, both unemployment and inflation have a strong impact on the socio-economic development of society as a whole, being the object not only of close attention of academic economists, but also of state macroeconomic policy.

1. Economic cycles. Potential and actual GDP. Causes of economic fluctuations

unemployment inflation economic cycle

Economic cycles. Potential and actual GDP.

The economic cycle represents periodically repeating and successive ups and downs of economic activity against the background of the general trend of economic growth.

Figure 4.1 shows a possible picture of the cycle. We plot years on the abscissa axis. On the y-axis - the volume of GDP as the most general indicator economic activity. The straight line depicts the trend of economic growth (trend), that is, it represents the dynamics of the volume of potential GDP over time. The wavy line depicts the actual cyclical development of the economy, that is, it represents the dynamics over time of the volume of actual GDP (in nominal terms).

Potential GDP is the maximum volume of real output that an economy is capable of producing over a given period of time (usually a year) with the full and efficient use of all available factors of production and available technology.

Potential GDP therefore determines the productive potential of the economy and depends on the size of the total labor force and labor productivity. (More about this in the topic “Economic Growth”).

Actual GDP is the volume of real output created in the economy over a certain period.

The level of actual GDP is determined by the interaction of aggregate demand and potential GDP. If the level of aggregate demand is less than potential GDP, then the level of actual GDP will be lower than potential GDP, since it will be equal to the level of aggregate demand. When aggregate demand increases, actual GDP can reach the level of potential GDP, but by definition cannot be higher than it (Figure 4.1A).

In Figure 4.1, actual GDP is presented in nominal terms: upward deviations of the wavy line from the trend indicate inflation.

Causes of economic fluctuations.

The economic cycle first manifested itself in England, where in 1825 the first crisis of overproduction was noted (as an economic downturn or recession was then called). Since then, this phenomenon has been repeated periodically every 7-12 years. Since 1857, the cycle has become global in nature, since this year the economic downturn (recession) hit all the most developed countries. The deepest recession in capitalist countries took place in 1929-1933 and went down in history as the “Great Depression”: the drop in production reached 40% in some countries.

The scientific theory of cyclical development was developed by K. Marx in “Capital” on the basis of the labor theory of value. The classics and neoclassics did not recognize the natural nature of cyclical development. They believed (many of their followers still believe) that recessions are caused by exogenous (that is, external to the economy) factors: wars, revolutions, but mostly incorrect monetary policy states.

Since the time of Keynes, the view has been established that the cause of economic downturns is rooted in insufficient aggregate demand. Accordingly, the cause of macroeconomic fluctuations (that is, the existence of a cycle), according to most modern economists, is fluctuations in aggregate demand, especially investment demand.

Rice. 4.2

Phases of the economic (business) cycle

The economic cycle is divided into four phases (Figure 4.2):

a) depression - a period of rapid decline in aggregate demand combined with a rapid decline in GDP and rising unemployment, which ultimately ends in reaching the lowest point of the cycle (reaching the lowest point of the cycle is possible without depression).

b) recovery - an increase in aggregate demand combined with GDP growth and a reduction in unemployment;

c) boom - a period when aggregate demand reaches and then, as it approaches the peak of the cycle, exceeds the level of potential GDP. Full employment is achieved, the emergence of excess demand leads to an increase in the general price level (inflation).

d) recession - the phase following the boom. Aggregate demand declines, causing initially a modest decline in GDP and unemployment, and then a depression as aggregate demand declines further. (The difference between a recession and a depression is that during a recession the price level remains unchanged; if a recession turns into a depression, the price level falls).

2. Theories of cyclical development

Subsequently, cycles of a different duration were discovered, associated with the periodic renewal of the components of fixed capital and inventory.

Cycles of short duration (3-4 years) are called Kitchin cycles and are associated with fluctuations in inventory.

N. Kondratiev discovered “large cycles of economic conditions” (1928) - cycles lasting 40-50 years associated with structural changes in economics.

In the 40s of the twentieth century, the Austrian economist J. Schumpeter created a general picture of cycles of varying durations. They seem to be strung on top of each other and either weaken or strengthen each other (Figure 4.3).

In modern economic theory there is no unity of views on the problems of cyclical development. Many economists, for example, representatives of monetarism (M. Friedman), being followers of neoclassics in this matter, recognize the presence of macroeconomic fluctuations, but do not recognize the natural and regular nature of economic cycles. Following the classics and neoclassics, they express their belief in the exogenous nature of macroeconomic fluctuations, arguing that their main cause is incorrect economic, especially monetary, policy.

A prominent representative of the theory of rational expectations, R. Lukash, believes that cycles are caused by monetary shocks, but not all kinds, only unexpected ones.

You can also note “The Theory of the Real Economic Cycle” by A. Stockman.

Quite popular theories explain the economic cycle by periodic fluctuations in economic policy: the state, trying to avoid cyclical extremes (unemployment and inflation) during election campaigns, contributes to the swing of the economy.

3. Unemployment and its measurement. Forms of unemployment

Unemployment and its measurement.

Unemployment refers to the underutilization of labor. The unemployed are people who are part of the total labor force but do not have a job. The size of unemployment is characterized by the unemployment rate.

Unemployment rate = (unemployed: labor force)*100%, or

where u is the unemployment rate, U is the unemployed, L is the labor force. Since the labor force (L) is the sum of the unemployed (U) and the employed (E), the unemployment rate determines the share of unemployed in the (total) labor force, expressed as a percentage.

The size of the labor force depends on the population of the country and includes those who are able and willing (actively looking for work) to work. The workforce does not include:

children under 16 years old,

persons in specialized institutions (prisons, mental hospitals),

dropouts from the labor force (people who can work, but for some reason do not work and are not looking for work).

Full employment does not mean that one hundred percent of the workforce has a job. Consequently, the unemployment rate cannot be equal to zero, that is, there is a level of unemployment that is considered inevitable (the natural rate of unemployment). To understand what the natural rate of unemployment is, we need to consider:

Forms of unemployment.

Frictional unemployment (UF) is associated with changing jobs. People who quit one job can start another the very next day. Sometimes they may seek new employment for a period of time, becoming frictionally unemployed as labor markets fail to immediately balance the demand for labor with the supply of labor. Some frictional unemployment can be considered voluntary, as people decide to leave their jobs in the hope of finding a better one. Another part of frictional unemployment is involuntary: workers are fired and they are forced to look for a new job. Frictional unemployed include people who are waiting for their first job in life.

Structural unemployment (US) is long-term unemployment caused by the decline of individual industries and changes in production processes. It occurs when, over time, changes occur in the structure of consumer demand and in technology that change the structure of demand for labor: the structure of the labor force does not correspond to the structure of jobs (unemployment in some industries is adjacent to a shortage of workers in others).

It can sometimes be difficult to distinguish structural unemployment from frictional unemployment. However, the structurally unemployed, as a rule, cannot get a job without retraining or changing their place of residence. Structural unemployment is more long-term and therefore a more serious problem. In developed countries government bodies develop and implement special programs in order to reduce structural unemployment.

Cyclical unemployment occurs during the recession phase and is caused by a fall in aggregate demand. This is the most severe and serious form of unemployment.

4. Natural rate of unemployment. Okun's Law

Natural rate of unemployment.

Since frictional and structural forms of unemployment are inevitable and exist at all phases of the cycle, they are combined under the general name “ natural unemployment"(U*). If there is no cyclical unemployment, then the unemployment rate is called the natural unemployment rate (u*):

u* = (UF + US)/L = U*/L

Economists currently believe that the natural rate of unemployment is approximately 5 - 6%. If unemployment is at its natural rate, the economy is said to have reached full employment.

The volume of real GDP that corresponds to the natural rate of unemployment is called the production potential of the economy (potential level of real GDP).

Main economic consequences Excessive (that is, cyclical) unemployment is underproduction: if the economy is unable to provide enough jobs, part of its productive potential is lost forever. The difference between potential and actual levels of real GDP is called the GDP lag (or output gap).

Sometimes the actual level of GDP may exceed the potential level (for example, during a war, the state may prohibit workers in certain industries from quitting, thereby artificially reducing frictional unemployment).

Okun's Law. American economist Arthur Okun expressed in mathematical form the relationship between the unemployment rate and the GDP gap:

Y - actual GDP, Y* - potential GDP, (Y - Y*)/Y* in percent - output gap, u - actual unemployment rate, u* - natural unemployment rate, (u - u*) - cyclical unemployment rate , is an empirical coefficient, the values of which usually fall in the range from 2 to 3.

The above formula means: if the actual unemployment rate exceeds the natural rate by 1 percentage point, the gap between actual GDP and potential (output gap) will be %.

Y - real GDP in this year, Y-1 - real GDP last year, (Y - Y-1)/Y-1 in percent - annual growth rate of real GDP, u - actual unemployment rate in the current year, u-1 - actual unemployment rate in the past year .

The essence of this interpretation of Okun's law is as follows:

If the actual unemployment rate remains at last year's level, then the real GDP growth rate is 3% per year.

A one percentage point increase in the unemployment rate reduces the real GDP growth rate by two percentage points.

5. Inflation and its measurement. Inflation rate

Inflation is an increase in the price level in an economy that continues over a period of time. An increase in the price level, inflation, means a decrease in the purchasing power of money. Being, along with unemployment, a manifestation of macroeconomic instability, inflation is the object of macroeconomic policy.

Annual increases in the price level can be small and gradual (creeping inflation) or large and accelerating (hyperinflation).

Inflation is measured using an indicator called the inflation rate. The inflation rate shows the increase (increase) in the price level and is calculated using price indices.

Inflation rate this year:

p = (P - P-1) : P-1,

One of the serious problems of inflation is the uneven rise in prices for various goods. While prices for some goods can rise significantly, for others they rise more slowly and belatedly. As a rule, wage rates begin to rise with the greatest delay.

If the rate of inflation is known, then using the “rule of 70” you can quickly calculate the number of years during which the price level doubles. For this you need the number “70”.

6. Demand inflation and cost inflation

Demand inflation.

From the last lecture we know that there are two types of inflation generated by different reasons: demand inflation and cost-push inflation.

Demand-pull inflation occurs as a result of an increase in aggregate demand once the potential level of real GDP is reached. Figure 4.4 shows the relationship between aggregate demand growth and demand-pull inflation.

If aggregate demand grows on the Keynesian (horizontal) segment of the aggregate supply curve, that is, the AD1 curve shifts to AD2, the price level will not change and will remain equal to P1. At the same time, the level of real GDP will increase, therefore, the unemployment rate will decrease.

If the growth of aggregate demand continues so that the AD2 curve shifts to position AD3, that is, the equilibrium moves to the border of the ascending and classical segments, the price level will rise to P3. Real GDP will increase, reaching the potential level Qf. Unemployment will reach its natural level. An increase in the price level in an upward segment until reaching potential GDP (Qf) is called premature inflation.

Once aggregate demand exceeds AD3, it becomes excess aggregate demand, and then true demand-pull inflation begins.

Let us consider how the values of nominal and real GDP change due to the growth of aggregate demand.

On the horizontal segment: the price level is unchanged (P = const), therefore, nominal and real GDP grow at the same rate, since there is no inflation and changes in nominal GDP reflect only changes in real GDP.

In the intermediate period, nominal GDP grows faster than real GDP, since the growth of nominal GDP reflects both the growth of real GDP and the rise in the price level (inflation)

On the vertical segment, true (pure) demand inflation occurs, since the growth of nominal GDP reflects only an increase in the price level, and real GDP remains unchanged.

Thus, the source and cause of true demand inflation is excess aggregate demand.

Rice. 4.4

Cost inflation.

Cost-push inflation occurs as a result of rising resource prices. Faced with rising costs (due to rising resource prices), producers charge higher prices for their products, trying to compensate for increased costs by inflating prices in order to maintain profits.

In Figure 4.5 we see how rising costs shift the aggregate supply curve AS to the left to position AS1. The price level rises from P to P1, real GDP decreases from Q to Q1, therefore, employment decreases - stagflation begins, that is, a situation in which a low level of real GDP is combined with an increase in the price level (inflation).

Rice. 4.5

Main sources of cost inflation:

1. an increase in nominal wages (usually due to a change in the minimum wage rate by law), not supported by a corresponding increase in labor productivity.

2. an increase in prices for energy resources and raw materials (either due to a reduction in the supply of these resources on the market, or as a result of the action of cartels, or due to a fall in the country’s exchange rate, which leads to an increase in the cost of imported resources).

In reality, it can be difficult to distinguish between the two types of inflation. However, it is generally accepted that demand-pull inflation continues as long as there is excess aggregate demand. Cost-push inflation automatically limits itself, reducing the demand for resources, and gradually disappears (however, the problem of increasing real output and employment remains).

7. Inflation and real income. The impact of inflation on the redistribution of income and wealth. The impact of inflation on national output

Inflation and real income. The impact of inflation on the redistribution of income and wealth.

One of the most serious consequences of inflation is the redistribution of income. As noted, inflation reduces the purchasing power of money, so many people believe that inflation affects the entire society. To find out whether this is actually so, it is necessary to analyze how inflation, nominal income and real income are related to each other.

Nominal income is the amount of money households receive for factors of production. Real income is nominal income divided by the price level.

If the inflation rate is known, as well as the percentage change in nominal income (= growth rate of nominal income), then

DYreal (in %) = DYnom. (V %) - ,

where Y is income.

In conditions of inflation, real income:

will decrease if nominal income grows at a rate that is lower than the rate of inflation;

will not change if nominal income grows at the same rate as inflation;

will increase if nominal income grows faster than inflation.

Thus, not everyone suffers from inflation.

Recipients of fixed nominal income (government employees, pensioners, welfare recipients), as well as savers and creditors, suffer.

The winners are entrepreneurs whose prices are finished products prices for resources, debtors, and also the state, which pays for its obligations with “cheap” money, are growing faster.

In other words, inflation “taxes” those with fixed cash incomes and “subsidizes” those whose cash incomes rise faster than inflation.

As a result, a redistribution of income and wealth occurs.

The influence of inflation on the volume of national production.

The impact of inflation on national output (real GDP) and employment may vary.

Some demand-side inflation is accompanied by an increase in real GDP and a decrease in unemployment (premature inflation on the upward slope of the aggregate supply curve).

With true demand inflation, real GDP does not change, remains at its potential level, and the economy is at full employment.

If inflation is caused by rising costs, then real GDP declines and unemployment rises.

Hyperinflation (that is, extremely high and rising rates of inflation) has a devastating impact on national output and employment. It is usually preceded by an inflationary spiral (wage-price spiral): for example, an initial increase in the prices of goods and services, caused by rising prices for raw materials, can lead to demands from trade unions for an increase in cash wages. If these requirements are met, increased wage costs will push producers to raise prices for final goods and services, etc.

Hyperinflation leads to a situation in which people lose confidence in money and turn to barter. In this case, there is a great danger of economic collapse and serious social upheaval.

Hyperinflation is a rare occurrence. Its causes lie in both politics and economics, such as excess money supply to cover government spending during a war, or severe shortages of goods and services coupled with suppressed demand, as usually happens in the immediate post-war years.

8. Stabilization policy and its methods

Stabilization policy is the management of the level of aggregate demand in the economy through fiscal and monetary policies in order to mitigate or even eliminate fluctuations in the level of economic activity (real GDP and employment) associated with the economic (business) cycle.

The main goal of stabilization policy is to “fine-tune” aggregate demand in order to prevent:

1. insufficiency of aggregate demand compared to potential GDP (to avoid losses in output and unemployment);

2. excess aggregate demand compared to potential GDP (to prevent inflation);

Of course, the ideal policy would be one that would ensure growth in aggregate demand that exactly matches the growth of potential GDP (the solid straight line in Figure 4.6). However, the development and implementation of stabilization policy faces a number of problems related to the accuracy of the forecast of economic development, the precise determination of the time and volume of measures taken. The actual results of this policy look more modest: at best, the state manages to mitigate recessions and booms (the dotted curve in Figure 4.6).

The methods of stabilization policy are the instruments of fiscal and monetary policy, which will be analyzed in lectures 6 and 7.

Stabilization policy is one of the aspects of the state's macroeconomic policy. Other important areas are supply policy, which affects the growth rate of potential GDP (Lecture 10), and exchange rate policy, which affects the competitiveness of goods and services supplied to the foreign market (Lecture 11).

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