At present, the conditions of economic instability. Unstable economy

The purpose of the course work is to consider 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 for 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 on the example of two manifestations: unemployment and inflation, because. most economists recognize these indicators as the most striking form of macroeconomic instability.

Introduction 3
1. What is macroeconomic instability and how does it manifest itself? five
1.1. The essence of the concept of macroeconomic instability 5
1.2. Main manifestations of macroeconomic instability 6
1.3 Business cycle: main 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 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. Mechanism of influence of inflation on the economy 27
3.5. Inflation in Russia 29
4. The relationship between inflation and unemployment: a general statement of the problem 31
Conclusion 33
References 36

The work contains 1 file

AONO 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 Russian economy

Completed: student gr. MA-114 T.N. Meshcheryakova

Supervisor: E.A. holy spirit

Grade:

The date:

VORONEZH 2012

Introduction 3

1. What is macroeconomic instability and how does it manifest itself? five

1.1. The essence of the concept of macroeconomic instability 5

1.2. Main manifestations of macroeconomic instability 6

1.3 Business cycle: main 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 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. Mechanism of influence of inflation on the economy 27

3.5. Inflation in Russia 29

4. The relationship between inflation and unemployment: a general statement 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, sustainable rate. In addition, the price level, as 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 shows clearly that full employment and price stability are not achieved automatically.

Our society aspires to economic growth as well as full employment and stable prices, among 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 present, many employment problems are veiled, hidden. Along with ensuring full employment, maintaining price stability is one of the most important goals of the national economy. Inflation, as well as unemployment, has serious negative economic and social consequences.

Unemployment and inflation (as the main indicators of macroeconomic instability) existed, exist and will continue to exist, since the economic system of any state cannot always function flawlessly. There will always be wage rigidity that prevents the wage level from being lowered to the point of equilibrium and thereby gives rise to expectant unemployment; from time to time, states will be characterized by an imbalance between the money supply and commodity coverage, and so on. Thus, it is obvious that the relevance of the research topic is dictated by theoretical and practical circumstances.

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 such 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, supply and demand, 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 realization of their interests in all structural elements of the national economy. Identification of violations and deviations from the ideal model makes it possible to find ways and means to eliminate them. In addition to the ideal and actual equilibrium, there is a partial equilibrium, that is, equilibrium in individual markets for goods, and a general equilibrium, which is a single interconnected system of partial equilibria.

Thus, from the foregoing, we can conclude that the theory of general economic equilibrium explains the process of coordinating the plans of economic entities under certain production possibilities 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 yourself 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 cyclicality of macroeconomic development, which is a periodic instability in the trend of long-term economic growth;

Inflation, which slows down scientific and technological progress, disorients capital investment, and hinders investment processes;

Imperfection of the taxation system, resulting in a reduction in total income;

Short-sighted actions of the state in the field of social policy, unreasonable expansion of social programs;

Unemployment, as a result of which the income of the population decreases, which, in turn, reduces savings, etc.

Consider the above forms of macroeconomic instability.

Cyclical nature of macroeconomic development.

In general, the crisis is a sharp reduction in production volumes, 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 drop in its volume.

As already mentioned, society develops unevenly, through ups and downs. Fluctuating economic dynamics has 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 causes of cyclicity are periodic depletion of autonomous investments, the weakening of the multiplier effect, fluctuations in the volume of the money supply, the 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 are necessarily raised. Even during periods of fairly rapid inflation, some prices may remain relatively stable while others fall. One of the main sore spots of inflation is that prices tend to rise very unevenly. Some bounce, others rise more moderately, and still others don't rise at all.

Taxation.

The state cannot exist without taxes. Taxes are mandatory payments levied by the state from legal entities and individuals in order to meet public needs. The legally fixed set of taxes, payments, principles of their construction and methods of collection forms the tax system.

Taxes are not only the main source of replenishment of state revenues, but also one of the main levers of state 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 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 - those who are 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 the adoption of 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 a more detailed description and study. But, based on 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. .

5.4 Economic instability.

The market economy has a certain instability, instability of economic development. However, this instability is not an evil that inevitably leads to catastrophe and the collapse of the economic system. The phenomena of economic instability should be considered and taken into account in the economic policy of the state.

The task of economic policy is to achieve the stabilization of the functioning and development of the economy, thus providing a sound basis for social and political stability.

Among the many forms of economic instability, the most significant are:

cyclical fluctuations in the level of GDP, investment, consumption, employment;
unemployment;
inflation.

Business cycles

Economic development in a market economy implies a successive change in periods of growth in production, the level of GDP, employment, periods of their decline.

The regularity of these successive alternations of ups and downs gives economic development a cyclical character.

Business cycles are periodic fluctuations in the level of economic activity in a society.

The first economic crisis, from which recurring crises are counted, was recorded in England in 1825. Then the crisis began in other countries, repeating every 8-12 years. In 1873, the economic crisis began simultaneously in a number of countries around the world. It was the first world economic crisis in the history of cycles.

In economic theory, there are:

long-wave cycles (Kondratiev cycles) with a period of 50 years, which are associated with the change of generations of equipment and technology;
average (industrial) cycles with a period of 8-12 years, which are associated with the deviation of demand from supply; their length is determined by the period necessary for the mass renewal of fixed assets;

Small cycles with a period of 3-4 years, which are associated with fluctuations in product inventories.

It should be noted that all these types of cycles are superimposed on one another.

We will consider and characterize the main phases of the average (industrial) cycle.

Phases of the middle (industrial) cycle

A cycle is a period of time during which the following phases change in succession: recession, depression, recovery and recovery.

Decline - starts from the peak of the previous cycle and continues to the lowest point of the cycle.

This phase is characterized by a sharp decline in business activity. Firms suddenly find that they have overestimated the projected demand for their products and are unable to sell the goods produced at the previous prices.

In order to sell the resulting surplus, they are forced to reduce the prices of their products. Firms suffer huge losses, they are not able to return the loans taken and pay interest on them. A wave of bankruptcies begins and spreads throughout the economy. Unable to sell already manufactured products, enterprises reduce production volumes. Of course, there is no longer any talk of expanding production, and, as a result, enterprises are reducing their investment in production, and the demand for equipment is falling.

The decline in production causes a wave of layoffs of workers, unemployment is growing. People's incomes are falling. Due to the decline in income, and also because of the desire of people to put aside part of these incomes "for a rainy day", the population's spending on consumer goods is falling, which means that the demand for consumer goods and services is decreasing.

The standard of living of the employed is declining. Panic and general pessimism reign in society. We note in particular that during this period, interest rates on loans are growing: firms tend to re-borrow money in order to avoid bankruptcy, there is a general pursuit of money, and the demand for free cash is growing. In addition, banks themselves seek to set higher rates, as there is a high risk of non-repayment of loans issued by them.

Perhaps the most severe was the recession of 1929 - 1933, which went down in history under the name "Great Depression", then the United States, according to economists, was thrown back by 146 years, national income decreased by almost 2 times, per capita income decreased by 30%, the unemployment rate reached 25%.

Depression: Having reached a low point, the economy remains in this state for a while.

The decline in production has practically stopped, and production and employment are at their lowest levels. Enterprises avoid long-term investments, the population does not make expensive purchases. Everyone is in a state of uncertainty, afraid to start new business.

However, commodity stocks are gradually dissolving, the fall in consumer and investment demand stops, and commodity prices stabilize. Since the demand for money has now fallen sharply, there is a decrease in interest rates on loans to the lowest level.

And the business world is slowly starting to come to life: enterprises that have managed to survive the crisis are beginning to upgrade equipment, acquiring more modern technology (fortunately, loans are now more available), introducing new technologies, and taking measures to improve production efficiency. Their goal is to reduce costs in order to make a profit in the conditions of low prices for products.

As a rule, without the participation of the state, the exit from the state of depression proceeds very slowly, but, having reached the bottom, production gradually begins to gain momentum and the depression is replaced by a revival.

Recovery - begins at the lowest point of the depression and ends when the economy reaches the pre-crisis peak.

The beginning of economic activity revitalization creates an expectation of an increase in the level of current income. This is manifested in a gradual increase in consumer demand. In response, production begins to increase, primarily due to the involvement of free capacities, employment grows and, as a result, incomes (profit, wages) grow.

Incomes are rising both nominal and real. People have the opportunity to purchase the goods they need. As a result, there is a further increase in demand. At some point, it becomes clear that it is no longer possible to expand production without large-scale investments, and their rapid growth begins. Enterprises have all the conditions for the growth of investments: there is an opportunity to expand production at the expense of relatively inexpensive loans and there is a motive - profit growth. Investment demand is growing and at the same time there is an expansion in the production of almost all goods and services.

The expansion of production contributes to the emergence of new jobs, an increase in demand for labor and, accordingly, an increase in employment. The well-being of people is growing, in society pessimistic moods are replaced by optimistic ones.

Economists note that at this stage, demand growth outstrips supply growth and, as a result, aggregate demand exceeds aggregate supply.

It should be noted that, since there is an increase in demand for all types of resources, including monetary resources, then simple interest rates begin.

Rise: comes after the revival phase and continues until its peak.

At this stage, the "trot goes into a gallop", there is an acceleration of economic development, which is manifested in the fact that new goods, new enterprises appear, investments grow, interest rates, prices, wages, and employment grow. Part of the demand begins to be speculative: many people have a desire to purchase goods in order to resell them profitably, since prices for most goods are rising. Large loans are taken for these purchases, i.e., demand is partially supported by loans. When approaching the peak - the highest point of recovery, the economy overheats. Credits become more and more expensive, inventories grow, and inevitably there comes a moment when the whole system collapses like a house of cards, and the economy again finds itself in a state of deep crisis.

In the vast majority of cases, each subsequent “peak” turns out to be higher in level than the previous one, which reflects the overall growth of the economy, its progressive development

Economists attribute the sharp transition from boom to recession to the fact that production growth is purposefully and systematically organized by producers, while demand is spontaneously formed in the market by buyers and depends on many random factors. And since demand can easily decline, this is exactly what happens during a recession: aggregate supply is greater than aggregate demand.

Of course, the crisis for the country's economy is a big test, it brings many negative aspects, but we note the positive side of the economic crisis, which is the recovery of the economy. According to the principle of natural selection, inefficient enterprises with a high level of costs go bankrupt during a recession. The "surviving" enterprises carry out innovations that lead to increased efficiency, and in the future to an increase in production. Old technologies are being replaced by new ones.

At present, recessions in developed market economies have become less deep (up to 2% of GDP) and shorter (6-12 months). There is a clear violation of the classical cycle, the phases of the cycle have become more blurred, some phases completely drop out. Now, in the recession phase, there is no decrease in prices, on the contrary, there is an increase in prices. This phenomenon is called stagflation.

Stagflation is a simultaneous increase in inflation and a decline in production, accompanied by an increase in unemployment.

The emergence of stagflation is explained by the fact that the state has a monopoly on the issue of money. The importance of production monopolies has increased, which prefer not to lower prices, but to reduce the volume of production; trade unions have appeared on the labor market that do not allow wage cuts.

Reasons for business cycles

There is no consensus among economists about the causes of this complex phenomenon. Each economic school explains the nature of economic cycles in its own way.

Some economists argue that cycles are related to the influence of external factors. They name such factors as major discoveries in science and advances in technology, natural disasters (droughts, floods), wars, revolutions and other political upheavals, population fluctuations, etc. There is a theory that explains cycles by changing the ratio of pessimistic and optimistic moods in society . There is even a theory that links the dynamics of the economic cycle with changes in the configuration of sunspots.

Other economists believe that the explanation of the cycle lies in the internal processes occurring in the economy, and external factors are of secondary importance. They believe that crises occur because there are contradictions between a rigid organization of production and an unregulated market, that the spontaneous development of the market leads to market imbalances, and this in turn leads to sectoral imbalances. That the crisis can also be caused by failures in the monetary sphere and errors in the state budget policy.

However, almost all economists agree that:

Fluctuations in the level of economic activity is a consequence of the deviation of the economy from the equilibrium state;

Of decisive importance in the movement of the cycle are investments in real capital, primarily in machinery and equipment;

The state can actively influence the mechanism of the cycle, using the methods of budget policy for this, i.e. by regulating their income and expenses, as well as the methods of monetary policy, i.e. by regulating interest rates and the money supply.

In order to regulate the economy, the state conducts targeted economic

5.2 Government policy to stabilize the economy

The main goal of the socio-economic policy of the state is to ensure economic and social stability and promote the economic development of the country. This general goal can be fleshed out into the following goals:

economic growth (allows for a higher standard of living);
full employment (provides the population with income and saves society from losses associated with underutilization of labor resources);
economic efficiency (use of resources with maximum return for society);
economic freedom (providing freedom of choice, freedom of entrepreneurship, etc. within the framework of the law);
growth in the well-being of citizens (all citizens should be given the opportunity to lead a life worthy of a person);
price stability;
ensuring strong positions in relations with other countries.

The economic development stabilization policy includes three components: counter-cyclical policy, full employment policy and anti-inflationary policy. At the same time, each of these areas of stabilization policy cannot be carried out in isolation from its other areas.

To achieve these goals, the state applies the following methods of influencing the economy.

1) Administrative methods are based on the power of state power and include measures of prohibition, permission and coercion. The fact is that the state has special rights that other actors in the economy do not have, first of all, this is the right of coercion. The state has the right, for example, to force you to pay taxes, and if you refuse, it can deprive you of your property and even put you in jail. To control compliance with the rules established by the state, it creates special bodies, for example, the tax police. Administrative methods are methods of direct impact on economic entities.

Unemployment and its impact on the state of the economic potential of society. Pouken's law

Both 100% employment and high unemployment are contraindicated in a modern market economy.

If we assume 100% employment of the population, then the factor of inefficient use of labor force will appear.

There must be a certain reserve of labor force in the labor market. This reserve is called the natural rate of unemployment. 5-7% of the unemployed of the able-bodied population.

If the unemployment rate is high: Inefficient use of labor and high unemployment is fraught with social explosions.

Unemployment is measured by two main indicators.

1. Unemployment rate - is defined as the proportion of officially registered unemployed in the working-age population.

This indicator does not provide a complete picture of employment situations. The study of employment problems, the development of government programs are carried out on the basis of the level and duration of unemployment.

2. Duration of unemployment.

Unemployment, being a product of a decline in production, becomes a link in economic instability and exacerbates this decline. Unemployment worsens the standard of living of both the unemployed and those who have a job, because an excess of labor in the labor market is a good background for lowering the price of labor. With a high level of unemployment, conditions are created for the emergence of social conflicts in society. Business activity is deteriorating. Often, free capital flees from high-risk regions to regions where stable economic development is observed. The decline in people's living standards leads to a decrease, a decrease in consumer demand, to a decrease in the level of savings. And in general, it leads to a decrease in the level (curtailment of part) of production.

Unemployment causes direct losses to society, which are manifested in the following:

· The economic potential of the society is underutilized; a certain amount of labor force is not involved in the creation of national wealth.
· With prolonged unemployment, many workers may lose, either completely or partially, qualifications.
· High unemployment tends to have a negative impact on the mental health of society.
· A high level of unemployment, as a rule, causes an aggravation of the criminal situation in society.

Each percentage increase in unemployment results in a shortfall of 2.5% of GNP for society.

Moderate unemployment is a boon for economic growth. Positive points:

1. Unemployment is a reserve of labor force that can be used during the subsequent expansion of production, during structural transformations of the economy.
2. The presence of unemployment is one of the organizers of labor discipline. The fear of losing a job makes workers work harder.

Causes and types of unemployment

Many economic schools have tried and are trying to analyze the causes of unemployment. One of the opinions is the opinion of the economist priest Malthus (end of the 18th century), expressed in the work "Experience on the Law of Population". He decided that unemployment was caused by demographic reasons. As a result, their population growth rate exceeds the growth rate of the production of material goods and services. Population is increasing exponentially, and material goods and services - in arithmetic progression.

Karl Marx (second half of the 19th century) in his work "Capital" suggested that the cause of unemployment was the lagging demand for labor from the rate of capital accumulation. Cyclic development of the market economy.

Pigus (1923), in The Theory of Unemployment, argues that imperfect competition operates in the labor market, which leads to an increase in the price of labor.

Reasons for unemployment:

1. The introduction of unmanned equipment and technologies.
2. The decline of old industries (coal, ferrous metallurgy, etc.)
3. Agriculture and the state administrative apparatus are the cause of hidden unemployment.
4. Imperfection of the labor market. Lack of reliable information.

Types of unemployment:

1. Friction. (shows normal staff turnover)
2. Structural. (characteristic of the period when global structural changes are taking place in the country)
3. Cyclic. (caused by the cyclical development of the economy)
4. Institutional. (results from insufficiently efficient organization of the labor market)
5. Voluntary.
6. regional.
7. Technological.
8. Hidden.
9. Partial.
10. Forced.

Problems of social protection of the population in conditions of unemployment

Modern Malthusians propose to maintain stability in the labor market with the help of a state policy of birth control.

Pigus and his supporters see the root of evil in high wages. Hence, they propose to reduce wages, as well as the fact that the state should employ those who do not claim high wages. Use of part-time work.

Society should try to minimize the losses from unemployment. First of all, it must create conditions for the unemployed so that they can survive until they find a job, while society achieves a certain social effect, shows humanity and social stability, which is the basis for further development and subsequent investment. Somehow, both the physical and spiritual health of the society is maintained, and, consequently, of the labor force, which at a certain moment becomes unemployed.

Methods:

1. The system of unemployment benefits. It is financed mainly from three sources: compulsory contributions from enterprises, contributions from the employees themselves and budget subsidies.
2. Those who have not found a job after the expiration of the benefits period may be provided with one-time cash payments, or benefits in kind.
3. Society forms social programs to help those who are physically unable to feed themselves.

Also, society represented by the state can develop programs to eliminate unemployment. Such a program may include retraining (retraining) of employees.

In Russia, there is a system of measures to regulate and organize employment of the population.

Regulation of employment of the population, i.e. measures of financial-credit, tax policy aimed at the rational distribution of production forces are being developed. Encourage flexible working arrangements.

There is a federal state employment service. Provides an assessment of the state and analyzes the employment of the population.

The organization of public works is practiced. The state guarantees a number of types of social support for the unemployed:

· Payment of allowances.
· Payment of scholarships during the period of professional retraining.
· Public works are paid from the budget.
· Reimbursement of expenses in connection with the transfer to another place of work (service).

Subject: Economics

Group RDKR-11

Olga Nazaralieva

Anna Klycheva

Anna Prants

Macroeconomic instability:

unemployment and inflation

Teacher:

Liventseva O.

Introduction

If there were an ideal economy, then the volume of national production would grow constantly and evenly, prices would not change, and everyone who wanted to work would have a job. This situation does not automatically arise. In any country there is local instability: output, prices and employment fluctuate; there is the 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, state budget deficit, foreign trade balance deficit. It is characteristic of a market economy. Macroeconomic instability in many areas reduces the efficiency of the economy. For example, unemployment means a shortfall in production, and an increase in unemployment by 1% means a reduction in economic growth by 2-3%.

Business cycles

Economic cycles are the time intervals between two qualitatively identical states of the economic situation. The economic conjuncture refers to 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.

Cycles according to Schumperer

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 (Kondratiev cycle) of 40-60 years is associated with the most important inventions and innovations: electrification, etc.

Factors affecting the duration of cycles:

Time factor: the time of renewal of the fixed capital,

Market dynamics,

State intervention in the economy

Low Investment: Low investment results in poor performance. The rapid influx of investment (from abroad) can lead to overheating of the economy: prices and incomes rise rapidly. Wages are rising, skilled workers are in short supply.

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 durable capital goods than in industries producing non-durable goods.

When the economy begins to struggle, manufacturers often stop acquiring more modern equipment and building factories. In such a conjuncture, it simply does not make sense to increase stocks of investment goods.

Budget cuts: When a family's budget has to be cut, plans to purchase durable goods, such as household appliances and cars, are the first thing to fall apart. Non-durable consumer goods (clothes, food) cannot be put off for long. The quantity and quality of these purchases will decrease and deteriorate, but not to the extent of durable goods.

Decreasing demand: Most capital goods and durables industries are highly concentrated with a relatively small number of large firms dominating the market. As a result, such firms have enough monopoly power to resist price declines for a certain period by limiting output due to falling demand. Therefore, the decrease in demand has an impact mainly on production and employment.

GDP volume;

employment rate;

The level of utilization of production capacities;

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 Labor Organization, the term "unemployment" means the presence of people of working age who are unemployed, but able to work and looking for work in a given period of time. The number of "job seekers" includes persons registered with the labor exchange as unemployed. In 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.

Unemployment types:

Voluntary unemployment (frictional and institutional)

Forced (cyclical and structural)

Frictional unemployment is associated with the voluntary abandonment of one job in order to find another. Usually this is a temporary loss of work due to a change of residence by persons who have a job, or the inability to find employment for those who are looking for a job for the first time.

Institutional unemployment may arise as a result of the provisions existing in the country on the minimum wage, on unemployment benefits.

Cyclical unemployment - generated by the cyclical nature of the development of a market economy, that is, the alternation of periods of rise and fall in production. The general economic downturn is causing the loss of work and the inability to find one in any specialty.

Structural unemployment is also a temporary loss of work by a part of the working 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 during structural shifts in the economy causes the dismissal of part of the workforce.

Certain industries (for example, agriculture, construction) are 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 used, but there is also no dismissal of the labor force.

"Natural Unemployment"

"Natural unemployment" - unemployment, including 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 is zero.

Natural unemployment rate in Estonia, USA and Sweden:

A. Okun's law

Every percentage of unemployment above the natural rate results in a 2.5% loss of potential GNP

If actual unemployment is below the natural rate, then this leads to higher prices.

That. A market economy is contraindicated for too high or low unemployment.

Maintaining unemployment at a natural level indicates the effectiveness of the development of the state economy. Since in a market economy there is no mechanism that ensures permanent full employment, the problem of employment is an object of state regulation.

What is inflation?

Inflation is a subtle socio-economic phenomenon generated by disproportions in reproduction in various areas of the market economy. At the same time, inflation is one of the most acute problems of modern economic development 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 lies in the fact that the national currency depreciates in relation to goods, services and foreign currencies that maintain the stability of their purchasing power. Some Russian scientists add gold to this list, giving it, as before, the role of a universal equivalent.

5.4 Economic instability.
The market economy has a certain instability, instability of economic development. However, this instability is not an evil that inevitably leads to catastrophe and the collapse of the economic system. The phenomena of economic instability should be considered and taken into account in the economic policy of the state.
The task of economic policy is to achieve the stabilization of the functioning and development of the economy, thus providing a sound basis for social and political stability.
Among the many forms of economic instability, the most significant are:

Business cycles
Economic development in a market economy implies a successive change in periods of growth in production, the level of GDP, employment, periods of their decline.
The regularity of these successive alternations of ups and downs gives economic development a cyclical character.
Business cycles are periodic fluctuations in the level of economic activity in a society.
The first economic crisis, from which recurring crises are counted, was recorded in England in 1825. Then the crisis began in other countries, repeating every 8-12 years. In 1873, the economic crisis began simultaneously in a number of countries around the world. It was the first world economic crisis in the history of cycles.
In economic theory, there are:

- small cycles with a period of 3-4 years, which are associated with fluctuations in product inventories.
It should be noted that all these types of cycles are superimposed on one another.
We will consider and characterize the main phases of the average (industrial) cycle.
Phases of the middle (industrial) cycle
A cycle is a period of time during which the following phases change in succession: recession, depression, recovery and recovery.
Decline - starts from the peak of the previous cycle and continues to the lowest point of the cycle.
This phase is characterized by a sharp decline in business activity. Firms suddenly find that they have overestimated the projected demand for their products and are unable to sell the goods produced at the previous prices.
In order to sell the resulting surplus, they are forced to reduce the prices of their products. Firms suffer huge losses, they are not able to return the loans taken and pay interest on them. A wave of bankruptcies begins and spreads throughout the economy. Unable to sell already manufactured products, enterprises reduce production volumes. Of course, there is no longer any talk of expanding production, and, as a result, enterprises are reducing their investment in production, and the demand for equipment is falling.
The decline in production causes a wave of layoffs of workers, unemployment is growing. People's incomes are falling. Due to the decline in income, and also because of the desire of people to put aside part of these incomes "for a rainy day", the population's spending on consumer goods is falling, which means that the demand for consumer goods and services is decreasing.
The standard of living of the employed is declining. Panic and general pessimism reign in society. We note in particular that during this period, interest rates on loans are growing: firms tend to re-borrow money in order to avoid bankruptcy, there is a general pursuit of money, and the demand for free cash is growing. In addition, banks themselves seek to set higher rates, as there is a high risk of non-repayment of loans issued by them.
Perhaps the most severe was the recession of 1929 - 1933, which went down in history under the name "Great Depression", then the United States, according to economists, was thrown back by 146 years, national income decreased by almost 2 times, per capita income decreased by 30%, the unemployment rate reached 25%.
Depression: Having reached a low point, the economy remains in this state for a while.
The decline in production has practically stopped, and production and employment are at their lowest levels. Enterprises avoid long-term investments, the population does not make expensive purchases. Everyone is in a state of uncertainty, afraid to start new business.
However, commodity stocks are gradually dissolving, the fall in consumer and investment demand stops, and commodity prices stabilize. Since the demand for money has now fallen sharply, there is a decrease in interest rates on loans to the lowest level.
And the business world is slowly starting to come to life: enterprises that have managed to survive the crisis are beginning to upgrade equipment, acquiring more modern technology (fortunately, loans are now more available), introducing new technologies, and taking measures to improve production efficiency. Their goal is to reduce costs in order to make a profit in the conditions of low prices for products.
As a rule, without the participation of the state, the exit from the state of depression proceeds very slowly, but, having reached the bottom, production gradually begins to gain momentum and the depression is replaced by a revival.
Recovery - begins at the lowest point of the depression and ends when the economy reaches the pre-crisis peak.
The beginning of economic activity revitalization creates an expectation of an increase in the level of current income. This is manifested in a gradual increase in consumer demand. In response, production begins to increase, primarily due to the involvement of free capacities, employment grows and, as a result, incomes (profit, wages) grow.
Incomes are rising both nominal and real. People have the opportunity to purchase the goods they need. As a result, there is a further increase in demand. At some point, it becomes clear that it is no longer possible to expand production without large-scale investments, and their rapid growth begins. Enterprises have all the conditions for the growth of investments: there is an opportunity to expand production at the expense of relatively inexpensive loans and there is a motive - profit growth. Investment demand is growing and at the same time there is an expansion in the production of almost all goods and services.
The expansion of production contributes to the emergence of new jobs, an increase in demand for labor and, accordingly, an increase in employment. The well-being of people is growing, in society pessimistic moods are replaced by optimistic ones.
Economists note that at this stage, demand growth outstrips supply growth and, as a result, aggregate demand exceeds aggregate supply.
It should be noted that, since there is an increase in demand for all types of resources, including monetary resources, then simple interest rates begin.
Rise: comes after the revival phase and continues until its peak.
At this stage, the "trot goes into a gallop", there is an acceleration of economic development, which is manifested in the fact that new goods, new enterprises appear, investments grow, interest rates, prices, wages, and employment grow. Part of the demand begins to be speculative: many people have a desire to purchase goods in order to resell them profitably, since prices for most goods are rising. Large loans are taken for these purchases, i.e., demand is partially supported by loans. When approaching the peak - the highest point of recovery, the economy overheats. Credits become more and more expensive, inventories grow, and inevitably there comes a moment when the whole system collapses like a house of cards, and the economy again finds itself in a state of deep crisis.
In the vast majority of cases, each subsequent “peak” turns out to be higher in level than the previous one, which reflects the overall growth of the economy, its progressive development
Economists attribute the sharp transition from boom to recession to the fact that production growth is purposefully and systematically organized by producers, while demand is spontaneously formed in the market by buyers and depends on many random factors. And since demand can easily decline, this is exactly what happens during a recession: aggregate supply is greater than aggregate demand.
Of course, the crisis for the country's economy is a big test, it brings many negative aspects, but we note the positive side of the economic crisis, which is the recovery of the economy. According to the principle of natural selection, inefficient enterprises with a high level of costs go bankrupt during a recession. The "surviving" enterprises carry out innovations that lead to increased efficiency, and in the future to an increase in production. Old technologies are being replaced by new ones.
At present, recessions in developed market economies have become less deep (up to 2% of GDP) and shorter (6-12 months). There is a clear violation of the classical cycle, the phases of the cycle have become more blurred, some phases completely drop out. Now, in the recession phase, there is no decrease in prices, on the contrary, there is an increase in prices. This phenomenon is called stagflation.
Stagflation is a simultaneous increase in inflation and a decline in production, accompanied by an increase in unemployment.
The emergence of stagflation is explained by the fact that the state has a monopoly on the issue of money. The importance of production monopolies has increased, which prefer not to lower prices, but to reduce the volume of production; trade unions have appeared on the labor market that do not allow wage cuts.
Reasons for business cycles
There is no consensus among economists about the causes of this complex phenomenon. Each economic school explains the nature of economic cycles in its own way.
Some economists argue that cycles are related to the influence of external factors. They name such factors as major discoveries in science and advances in technology, natural disasters (droughts, floods), wars, revolutions and other political upheavals, population fluctuations, etc. There is a theory that explains cycles by changing the ratio of pessimistic and optimistic moods in society . There is even a theory that links the dynamics of the economic cycle with changes in the configuration of sunspots.
Other economists believe that the explanation of the cycle lies in the internal processes occurring in the economy, and external factors are of secondary importance. They believe that crises occur because there are contradictions between a rigid organization of production and an unregulated market, that the spontaneous development of the market leads to market imbalances, and this in turn leads to sectoral imbalances. That the crisis can also be caused by failures in the monetary sphere and errors in the state budget policy.
However, almost all economists agree that:
- fluctuations in the level of economic activity is a consequence of the deviation of the economy from the equilibrium state;
- investments in real capital, primarily in machinery and equipment, are of decisive importance in the movement of the cycle;
- the state can actively influence the mechanism of the cycle, using the methods of budget policy for this, i.e. by regulating their income and expenses, as well as the methods of monetary policy, i.e. by regulating interest rates and the money supply.
In order to regulate the economy, the state conducts targeted economic
5.2 Government policy to stabilize the economy

To achieve these goals, the state applies the following methods of influencing the economy.
1) Administrative methods are based on the power of state power and include measures of prohibition, permission and coercion. The fact is that the state has special rights that other actors in the economy do not have, first of all, this is the right of coercion. The state has the right, for example, to force you to pay taxes, and if you refuse, it can deprive you of your property and even put you in jail. To control compliance with the rules established by the state, it creates special bodies, for example, the tax police. Administrative methods are methods of direct impact on economic entities.
In countries with developed market economies, these methods are used by the state mainly to ensure environmental protection (for example, a ban on the emission of harmful substances); guarantees of minimum acceptable living conditions for the poor (for example, the introduction of a minimum wage), as well as to combat shadow business (for example, the requirement to provide information about income in the event of the acquisition of real estate), etc.
2) Economic methods are associated with the creation of additional material incentives or possible financial penalties, for example, in the form of fines, and are methods of indirect influence on economic entities. Economic methods are divided into methods of monetary regulation and methods of budgetary regulation.
When it comes to providing soft loans to manufacturers of products that you
are given at a low interest rate (loan fee) and for long periods, or when the state changes the amount of money in the economy using the methods available to it, this means that the state resorts to monetary policy measures.
Monetary policy is a set of measures in the field of money circulation and credit aimed at regulating the economy.
When the state uses budget funds to regulate the economy, for example, reduces taxes for individual producers or introduces subsidies for the production of especially important products, then these are already measures of budget policy.
Budget policy is a set of measures to change the volume of budget revenues and expenditures in order to regulate the economy.
3) Another comprehensive instrument of state regulation is the state
etc.................