consider the forms of manifestation of macroeconomic instability.
As a result of studying topic 7, the student must have the following competencies:
- know: basic economic concepts of the topic; causes and consequences of inflation, unemployment, economic cycles;
- own: skills in calculating the unemployment rate and determining inflation rates;
- be able to: independently apply the acquired theoretical knowledge and practical skills to analyze economic phenomena in their professional activities.
- Economic cycles.
1.1. Causes of economic cycles. Types of economic cycles.
1.2. Models of economic cycles and their main phases.
- Employment and unemployment.
2.1.Measuring the unemployment rate.
2.2. Types of unemployment.
2.3. Okun's Law.
- Inflation.
3.1. Measuring the rate of inflation.
3.2. The relationship between inflation and unemployment. Phillips curve.
BASIC CONCEPTS AND FORMULAS
7.1. Economic cycles
7.1.1. Causes of economic cycles. Types of economic cycles
Economic cycle represents periodic fluctuations in the level of employment, production and inflation.
Causes of economic cycles
there may be various phenomena (insufficient level of consumption, changes in the money supply, technical innovations, etc.). However, all the above reasons can be reduced to one : discrepancy between aggregate demand(AD) and total supply(AS). Therefore, the cyclical nature of economic development can be explained either by a change in AD with a constant AS, or a change in AS with a constant AD.
Depending on the duration, causes and characteristics, there are several types of economic cycles
:
1) private business cycles (1-12 years) - cycles of fluctuations in investment activity;
2) D. Kitchin cycles (3-4 years) - inventory cycles;
3) cycles of K. Juglar (7-12 years) - investment cycles;
4) cycles of S. Kuznets (15-25 years) - construction cycles;
5) cycles of N. Kondratiev (45-60 years) - “long waves of economic conditions”;
6) cycles of D. Forrester (200 years) - cycles of energy and materials;
7) cycles of E. Toffler (1000-2000 years) - cycles of development of civilizations.
7.1.2. Models of economic cycles and their main phases
There are two-phase and four-phase models of economic cycles.
Two-phase business cycle model
includes:
- an upward phase (rise, expansion phase), which continues from the bottom (the lowest point of decline) to the peak;
- downward phase (decline phase, recession), which lasts from peak to bottom (lowest point of decline).
Four-phase business cycle model
(Fig. 7.1), first proposed by K. Marx, includes the following sequential phases:
1st phase - “peak”. This is a period of maximum economic activity, overemployment and inflation, since actual GDP is higher than potential GDP (Fig. 7.1). Potential GDP represents the volume of production at full employment of resources.
2nd phase - “recession” (or “recession”). Business activity begins to decline, actual GDP reaches its potential level and continues to fall below trend. This leads the economy to a new phase - crisis.
3rd phase - “crisis” (or “stagnation”). Actual GDP becomes less than potential. This is a period of underutilization of economic resources and high unemployment.
4th phase - “revival” (or “rise”). The economy gradually begins to emerge from the crisis, actual GDP approaches potential GDP, and then exceeds it until it reaches its maximum (which will again lead to the peak phase).
Rice. 7.1. Four-phase business cycle model
7.2. Employment and unemployment
Unemployment is a socio-economic phenomenon in which part of the country’s labor force is uninvolved in the production of goods and services. In Russia, the unemployed include persons who have reached 16 years of age, do not have a job and are looking for it (registered with the employment service), and are also ready to start work.
In the total population of the country there are category of working population, which includes people over 16 years of age. In turn, the working-age population is divided into persons included in the labor force and persons not included in the labor force. To the category of persons not included in the labor force, include people who are not engaged in social production and are not trying to find work (for example, pensioners, housewives, etc.). Category of persons included in the labor force(economically active population), consists of employed and unemployed.
7.2.1. Measuring the unemployment rate
Unemployment rate(UB) is the ratio of the number of unemployed to the total labor force (employed and unemployed), expressed as a percentage
(1)
Labor force participation rate(UU) is the share of the labor force in the adult population.
(2)
7.2.2. Types of unemployment
There are three main types of unemployment: frictional, structural and cyclical.
1. Frictional unemployment associated with searching for and waiting for work. The reason for the existence of frictional unemployment is imperfect information (information about the availability of available jobs). This unemployment is voluntary and short-term.
2. Structural unemployment due to structural changes in the economy. When the structure of production changes, the demand for some types of professions decreases or disappears, while for others it increases or resumes, as a result of which the structure of the labor force does not correspond to the structure of jobs. This unemployment is longer and more costly than frictional unemployment.
Frictional and structural unemployment are inevitable; their combination forms natural rate of unemployment
(unemployment rate at full employment).
3. Cyclical unemployment represents the difference between the actual and natural rates of unemployment. This is unemployment caused by the cyclical contraction of production, its cause is the recession in the economy. The presence of cyclical unemployment is a manifestation of macroeconomic instability and evidence of underemployment of resources.
7.2.3. Okun's Law
The relationship between the lag of a country's GDP and the deviation of actual unemployment from its natural level was studied by the American economist Arthur Okun.
Okun's Law states: if the actual unemployment rate exceeds the natural rate by 1%, then the lag in GDP is approximately 2.5%. The difference between potential and actual GDP is the relative GDP gap, and the ratio of this difference and potential GDP is the percentage GDP gap.
7.3. Inflation
Inflation- a stable tendency towards an increase in the general (average) price level - expresses a long-term process of decline in the purchasing power of money.
7.3.1. Measuring the rate of inflation
The main indicator of inflation is level (rate) of inflation (
R.I.
)
,
calculated as a percentage of the difference between the general price level of the current year (Pt) and the general price level of the previous year (Pt-1) to the price level of the previous year (Pt-1):
Thus, the inflation rate characterizes growth rate of the general price level. Typically used as an indicator of the general price level GDP deflator or consumer price index.
GDP deflator
equal to nominal GDP divided by real GDP.
If two consecutive periods of time are given, then the inflation rate over the total period of time is equal to
, (4)
where RI1, RI2 - the inflation rate, expressed in shares in the first and second periods of time.
If the number of time intervals is n, and the inflation rate at each of them is equal to RI1, then the inflation rate at the total time interval is equal to
(5)
If the value of RI1 is small, then RI can be calculated approximately
(6)
There is a so-called “magnitude rule of 70” that allows one to approximately determine the number of years required for the price level to double at a constant low level of annual inflation (up to 30%).
7.3.2. The relationship between inflation and unemployment. Phillips curve
The relationship between the inflation rate (π) and the unemployment rate (u) is displayed by the Phillips curve (Fig. 7.2).
Rice. 7.2. Phillips curve in the short and long periods
Phillips curve in the short term illustrates the inverse relationship between the inflation rate and the unemployment rate. This shape of the curve means that inflation is high when unemployment is low and low when unemployment is high. In the long run The Phillips curve is a vertical line and is fixed at the level of natural unemployment.
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In order to successfully influence economic processes, it is necessary to initially understand them. Therefore, it makes sense to pay attention to the gross domestic product, which is one of the key indicators of the decline or growth of the state’s economy.
What is GDP
Gross domestic product should be understood as a general economic indicator that is used to express the total cost of goods and services at market prices. Moreover, we are talking only about those products that were produced within the country using exclusively national capacities and resources in any sector of the economy.
When calculating GDP, data on the cost of intermediate products is not used. Gross domestic product is very important for economic processes, since without it it is extremely problematic to characterize the level of development, production results, growth rates, analysis of labor productivity, etc. 
Real and nominal gross domestic product
Gross domestic product can be nominal or real. The first, which is also absolute, is expressed through current prices for the specific period covered by the study. In other words, nominal GDP is an indicator that reflects the actual volume of services and manufactured products at prices prevailing within a given year.
As for the real gross domestic product, its expression occurs through the prices of the period defined as the base one. Thus, real GDP indicates actual output growth, not price changes. The price index (deflator) of GDP can be obtained by dividing the nominal product by the real one. This indicator is relevant for determining price changes for a specific period.
So, we have discussed what nominal GDP is and how it differs from real GDP. But this is not the whole classification, and therefore we move on.
Actual and potential GDP
By actual we mean the gross domestic product, which was recorded during the period when the economy was not in a state of full employment. It is used to identify opportunities realized within the development of the state.
In turn, potential GDP - this indicator is relevant for increasing aggregate growth, at which employment can be characterized as full. It serves to express the potential capabilities of this type of economy. As a rule, they significantly exceed real indicators. The GDP gap can be obtained by subtracting potential opportunities from actual ones.
It is also worth paying attention to the fact that GDP is a domestic product, since it is produced by residents of the country. Residents must be understood as the private economic sector, regardless of citizenship and nationality. GDP is called a product for the reason that its calculations are carried out minus the fixed assets that were used. The very process of using such funds represents a decrease in the cost of fixed resources over the period of time used for reporting. The reason for the decline is wear and tear, physical and moral obsolescence of resources.
Methods for calculating GDP
In order to determine gross domestic product, several methods can be used:
1. By expenses. With this approach, investment expenditures of companies, consumer expenditures of households, government expenditures aimed at purchasing goods, as well as net exports and investments are summed up (imports are subtracted).
2. Based on the amount of products produced. In this case, it is only necessary to sum up the added value from each company (meaning the type of markup that was created at a particular enterprise).
3. By income. The income of corporations, the population of the state (received from the activities of entrepreneurs, taxation of imports and production), as well as depreciation charges are summed up.
Features of potential GDP
A term such as potential GDP should be understood as the maximum possible level of gross product, subject to the full use of all available resources (full employment). Speaking about a full employment economy, we need to pay attention to the possibility of having a certain resource reserve. This can also include the natural rate of unemployment.
The growth of potential GDP is directly dependent on the amount of available technology and resources. Moreover, it is absolutely independent of the price level. That is why such calculations assume stable growth. It is also necessary to understand the fact that the influence of competition and the market can, in the long term, ensure production output at the level declared by potential GDP. In this case, any price level is allowed, which depends on the amount of money used in the economy.
If there is a high emission of money, then a rise in prices will be inevitable, but the money supply will not be able to influence the volume of production in the long term.
The value of potential GDP will grow provided that the amount of resources in the economy increases or the influence of technological progress manifests itself. But if the volume of funds decreases, the result will be diametrically opposite.
Factors influencing GDP
There are many economists who agree that the long-term period in macroeconomics can be described quite accurately using the classical model. The position of the classics was that if actual GDP deviates from potential, the market will eliminate these changes.
But there is another point of view. Its essence is as follows: it is possible to identify a short period (a quarter, for example), within which the scheme of the classical principle of money neutrality will not work. This means that changes in the money supply will have an impact not only on the price level, but also on real GDP.
Based on this information, we can draw the following conclusion: if actual and potential GDP have a significant difference in indicators (the first significantly lags behind the second), then companies will be able to increase production volume at a given price level.
This conclusion is fully consistent with the actual reaction of companies to the underutilization of the economy. In the case where a significant amount of resources is not used, enterprises can choose to attract additional funds without increasing the price level for them. An example is the unemployed who agree to work at any price offered.
This approach makes it possible to provide the company with the necessary amount of resources without increasing the cost of production factors.
Cyclicity of change
When considering potential and real GDP, it is worth paying attention to cyclical changes in the economy. One of the most popular views is that there is a business cycle that involves periodic fluctuations in levels of output, inflation, and employment. The reasons why this cyclicality occurs can be identified as a weakening of the multiplier effect, depletion of autonomous investments (periodic), renewal of key capital goods, fluctuations in the volume of money supply, etc.
Since macroeconomics does not use the integral theory of the business cycle, in most cases the emphasis is placed on specific causes of cyclicality, but they are not considered as a whole. But many experts believe that the formation of the level of total expenditures is determined by production and employment indicators. At the same time, seasonal fluctuations in activity in specific areas (construction, agriculture, etc.) are not taken into account.
The main phases of the economic cycle can be defined as recession and recovery. It is during these periods that deviations from average economic dynamics are recorded.
Okun's Law
When considering such an indicator as potential GDP, you need to pay attention to the level of natural unemployment. The lack of the required number of jobs is a natural part of the labor market. Moreover, this process can be described as complex, since it has a tangible impact on the formation of the labor force in the country.
The essence of the work of the American economist Arthur Okun comes down to identifying the connection between the lag of GDP and the lack of the required number of offers in the labor market. According to this theory, gross domestic product is sensitive to changes in the level of cyclical unemployment. Potential GDP and Okun's law have a logical relationship: the higher the unemployment rate, the less noticeable the difference will be between actual gross domestic product and possible one.
This coefficient is used as an indicator by which the general state of the economy is determined, as well as the level of its efficiency.
If we talk about the observed and actual unemployment levels, it is worth noting that they are not equal. During a period of economic downturn, there may be a significant lack of available jobs, resulting in actual unemployment above the natural level. When the economy is in a dynamic boom, the demand for labor increases so much that the percentage of those leaving production reaches a minimum. At the same time, the number of unemployed people who have the opportunity to find a job is significantly higher than the average. The difference between natural and actual unemployment is called market unemployment.
It is also worth noting the fact that, according to Okun's law, the consequences of cyclical unemployment can take on catastrophic proportions, affecting such indicators as nominal, real and potential GDP. We are talking about a decrease in production growth, leading to depression and inactivity of citizens. The result of such processes is a reduction and even loss of personnel qualifications.
In addition to these disadvantages, unemployment leads to serious economic costs: due to the inability of enterprises to provide the required number of jobs, the level of possible production of goods and provision of services is significantly reduced. Thus, the key loss for companies when unemployment is high is the products that are not produced.
The actual level of GDP is equal to the potential level if the level of production is minimal and maximum resources are used to produce goods and services.
Economic cycle
This term refers to periods of recession and recovery that periodically repeat as part of overall economic growth. The reason for such a cycle can be identified as fluctuations in aggregate demand. Investment demand also has a tangible impact on changes in macroeconomic indicators.
In assessing the cyclical nature of the economy, potential GDP is of great importance, the formula of which comes down to the sum of the influence of factors such as the maximum volume of real output and the most efficient use of all available resources over a specific period of time.
At the same time, it is important to understand that the level of potential gross domestic product will be higher than the actual level, the lower the indicators of aggregate demand are relative to the possible growth of the economy. If it grows significantly, then actual GDP may reach the potential level, but in any case it will not rise above it.
Business cycle phases
Fluctuations in the process of economic growth can be divided into certain phases that repeat periodically:
1. Depression. We are talking about a rapid decline in aggregate demand, along with which GDP is rapidly falling. As a result, there is an increase in unemployment, leading to economic indicators reaching the lowest point of the cycle. It is worth noting that the lowest point in the country's economic level is impossible without the influence of depression.
2. Rise. This is an increase in the level of aggregate demand, combined with an increase in GDP and an expansion of the labor market.
3. Boom. This phase implies a period during which aggregate demand is able to reach a maximum and, as it approaches the peak, exceed potential GDP. The formula for this phase comes down to the sum of factors such as excess demand, a significant decrease in unemployment and a subsequent increase in inflation.
4. Recession. This period immediately follows the boom. Initially, there is a decrease in aggregate demand, leading to a gradual decrease in gross domestic product and an increase in unemployment. As aggregate demand declines, depression develops. The key factor differentiating a recession from a depression is the unchanged price level.
Inflation
This term is used to define an increase in the price level throughout the country that lasts over a certain period. In other words, there is a decrease in the purchasing power of the national currency. The depreciation of money is measured in terms of the level or rate of inflation.
It is also worth paying attention to demand inflation. This phenomenon is the result of an increase in aggregate demand when the potential level of real gross domestic product is reached. As for cost inflation, in this case it makes sense to talk about the consequences of increasing resource prices. When the cost of inputs used in production increases significantly, enterprises raise prices for products, thereby hoping to maintain the same level of profit.
As you can see, such an indicator as potential GDP and factors associated with it play an important role in the process of assessing and forecasting the state of the state’s economy.
The relationship between unemployment and gross domestic product (GDP) has been debated for more than 50 years. This phenomenon was first characterized by the head of the Council of Economic Advisers of the Johnson Administration in the United States, Arthur Okun. The essence of his theory is that a decrease in the rate of economic development, expressed in the volume of production and output, provision of services and performance of work by 3% causes an increase in unemployment by 1%. However, there is also an inverse version of the relationship between unemployment and GDP. Thus, according to the Chaddock scale, the strength of the connection between factors can be qualitatively characterized as “moderate”, i.e. in 28.64%, a change in unemployment leads to a change in GDP. Based on two theories, we will analyze this trend in the Russian Federation.
Let's look at data on unemployment and GDP in Russia from 2001 to 2015.
According to official data from Rosstat, the average number of employed people in the Russian Federation in 2014 was 71,539 thousand people. In 2015, there was an increase in the number of employed by 784.62 thousand people. Considering this economic indicator for the constituent entities of the Russian Federation, we note that the highest number of employees among 8 constituent entities of the Russian Federation was observed in the Central Federal District both in 2014 and in 2015. However, over the last year there is a decrease of 107.752 thousand people. The lowest figure is presented in the Far Eastern Federal District - 3164.986 thousand people in 2015. The general situation of the employed population in the constituent entities of the Russian Federation for 2014 - 2015. presented in Table 1.
Table 1
Number of employed people in the constituent entities of the Russian Federation, on average per year, thousand people.
|
Subjects of the Russian Federation |
||
|
Russian Federation |
||
|
Central Federal District |
||
|
Southern Federal District |
||
|
Volga Federal District |
||
|
Ural federal district |
||
|
Siberian Federal District |
||
|
Crimean Federal District |
In 2014, Crimea was included in the Russian Federation, which played a major role in increasing the number of employed people in Russia. In 2015, changes occurred due to an increase in the number of employees in such constituent entities of the Russian Federation as the Northwestern, Southern, and Crimean federal districts.
Speaking about a positive change in the number of employed people, it is necessary to consider another situation, which is not so favorable. In 2015, there was an increase in the number of unemployed in Russia, which amounted to 4263.93 thousand people, and in 2016 - 3889.4 thousand people (Table 2).
table 2
Number of unemployed in the constituent entities of the Russian Federation, on average per year, thousand people.
|
Subjects of the Russian Federation |
||
|
Russian Federation |
||
|
Central Federal District |
||
|
Northwestern Federal District |
||
|
Southern Federal District |
||
|
North Caucasus Federal District |
||
|
Volga Federal District |
||
|
Ural federal district |
||
|
Siberian Federal District |
||
|
Far Eastern Federal District |
||
|
Crimean Federal District |
The increase in the number of people who have lost their jobs is due to the closure of enterprises that could not survive the economic crisis, as well as job cuts in government agencies. According to the Ministry of Labor, in 2015 the number of unemployed is the highest figure since the crisis year of 2009, when the ruble exchange rate fell quite significantly and companies began to reduce the number of employees and production volumes.
Let's look at Figure 1 at the unemployment rate in the Russian Federation over the past 15 years.
Rice. 1. Unemployment rate in the Russian Federation, %
According to Rosstat, the unemployment rate over the past 15 years has ranged from 5.2% to 9%. The highest rate was observed in 2001 (9%), and the lowest in 2014 (5.2%).
The highest unemployment rate this year was recorded in the North Caucasus Federal District - 11.8% of the working population. Thus, in Ingushetia, almost half of the population does not have a permanent official job. The Central District turned out to be the most successful in terms of employment of the population - there the share of unemployed was only 3.6%, while the highest unemployment rate was recorded in the Smolensk region - 6.4%.
Economy Russia is the sixth economy in 2015 among countries in the world in terms of GDP in PPP terms. From 2001 to 2008, GDP growth was observed (Figure 2).
Rice. 2. GDP, billion rubles.
This is primarily due to the signing by the President of the Russian Federation of a number of laws that introduced amendments to tax legislation. In 2001, a new Land Code of the Russian Federation was created, and in 2001-2004. socio-economic reforms (pension, etc.) were carried out, which stimulated economic growth.
In 2008 - 2010 there was a decline in GDP. This is due to the global crisis that developed at that time. First of all, the World Bank noted that the losses of the Russian economy were less than expected at the beginning of the crisis. As an example of the positive impact of government measures (increasing wages, unemployment benefits and the implementation of social support programs), the situation with the poverty level is given. It may return to the pre-crisis indicator of 12.5% in 2010, i.e. a year earlier than previously predicted. In 2009 the number of poor in the Russian Federation was about 14%, and without government measures of socio-economic support it could reach 16.9%.
“This was partly due to the large-scale package of anti-crisis measures taken by the government,” the report says.
Having analyzed the unemployment rate and GDP in Russia, we will consider their connection.
Unemployment is a complex phenomenon that has many nuances; the important thing is that this phenomenon does not exist on its own, and is always associated with certain social and economic costs. Economic losses of society are measured by the cost of unproduced goods and services, reduction in tax revenues to the state budget, etc. Thus, the economic costs of unemployment, expressed in the lag in GDP, are goods and services that society loses when its resources are in forced downtime. This pattern was revealed by the scientist - economist A. Okun. His law states that an increase in the actual unemployment rate by 1% above its natural level leads to a decrease in actual GDP compared to potential GDP by an average of 2.5%. According to Okun's law, unemployment rises during an economic downturn and output declines. Let's consider and compare the unemployment rate and GDP in Table 3.
Table 3
Unemployment rate and GDP in the Russian Federation for 2001 - 2015.
|
GDP, billion rubles |
Unemployment rate, % |
|
Looking at Table 3, we note that with an increase in GDP from 2001 to 2008, there is a decrease in the unemployment rate. However, in 2009 there was a decrease in GDP and an increase in unemployment. Thus, from 2009 to 2010, there was an increase in GDP by 1,713.6 billion rubles, and the unemployment rate fell by 1%. However, the observed decrease in GDP by 2349 billion rubles. led to an increase in the unemployment rate from 2014 to 2015 by 0.37%.
The GDP growth rate was much more sensitive to drops in the unemployment rate than to its rise, i.e. When the Russian economy is growing, Okun's law manifests itself more clearly than when there is a recession. This may be due to the existence of hidden unemployment.
Having identified the theoretical relationship between the unemployment rate and GDP, we determined a statistical relationship (correlation). The correlation coefficient of the considered elements was (-0.86). Based on the obtained correlation coefficient data, we have a fairly close inverse relationship between the unemployment level and GDP, i.e. with an increase (decrease) in the unemployment rate, a decrease (increase) in GDP occurs.
Thus, with the help of research data, we have identified trends in changes in the unemployment rate and GDP. Over 15 years, the unemployment rate has changed sharply from 9% to 5%, however, comparing the last 2 years, there is a slight increase. Looking at the GDP indicator, we can note the opposite trend. In 2014 - 2015 gross domestic product decreased by 2349 billion rubles. Having studied the relationship between these indicators, we highlight the fact that in addition to the influence of the unemployment rate and GDP among themselves, the stability of all indicators of the country’s economy plays an important role.
Economic indicators are macroeconomic indicators published in the form of reports by the government or independent organizations and reflecting the state of the national economy. They are published at specific times and provide the market with information about whether the economy has improved or worsened. The influence of such indicators, for example, on the global foreign exchange market can be compared with the influence of company earnings reports on the securities market. Any deviation from the norm can provoke significant fluctuations in price and volume.
Some reports, such as unemployment data, may be familiar to you due to their wide coverage. Others, for example, the start of housing construction, are not so popular. However, each indicator serves a specific purpose and is useful in its own way. Among the main economic indicators are the following: GDP, inflation rate, the size of gold and foreign exchange reserves, the refinancing rate, the size of public debt, the balance of payments, the unemployment rate, as well as a number of monetary indicators.
There are also various economic indices, usually calculated by independent organizations and institutions. These are, for example, indices of industrial activity, indices of consumer sentiment, indices of business confidence, various indices of economic expectations, etc. In general, economic indicators indicate changes in overall economic activity.
Gross Domestic Product (GDP)
Gross domestic product is the total value of all goods and services produced during the year on the territory of the country without dividing the resources used for their production into imported and domestic ones.
The two most commonly used methods for calculating GDP are:
- by summing up all income in the economy: wages, interest on capital, profit and rent;
- by summing up all expenditures incurred: consumption, investment, government purchases of goods and services, and net exports.
Theoretically, the calculation results in both cases should coincide, since the expenses of one participant in economic relations are always income for the other.
When assessing GDP, its dynamics are of main importance, and therefore the question arises about the comparability of GDP values for different periods, because prices for any type of product and service are constantly changing. Therefore, in the practice of measuring GDP, two indicators are used - nominal and real GDP.
Nominal GDP is determined by summing the products of the production volumes of individual goods and services and the level of their actual prices in a given year. To compare GDP for different years with each other, it is necessary to fix the prices of any year taken as the base year, and measure in these prices the value of production in the year of interest - real GDP. Comparing the results obtained in this way for the two selected years will reflect the change in the physical volume of GDP.
The size of real GDP can also be obtained by dividing nominal GDP by the GDP price index or GDP deflator, which is analogous to the consumer price index and shows the change in the price level of all goods included in GDP.
A steady decline in GDP signals an overly tight monetary policy of the state, in which low effective demand does not allow the enterprise to sell its products.
Consumer Price Index (Inflation Index)
Inflation is an overflow of the circulation channels of the money supply in excess of the needs of trade turnover, which causes depreciation of the monetary unit and an increase in prices. As a rule, inflation is characterized by a constant upward trend in the dynamics of the average price level. The main indicators of inflation in all countries are the consumer price index and the producer price index.
Consumer Price Index (CPI) is the main indicator of inflation, which measures changes in the prices of goods and services included in a fixed consumer basket, covering goods and services of constant demand (food, clothing, fuel, transport, medical care, etc.). d.).
The main features of the behavior of this indicator in the business cycle:
- inflation in the service sector lags behind inflation in the goods market by approximately 6 - 9 months;
- inflation has its own cycle, lagging behind the general cycle of economic growth.
Gold reserves
Gold and foreign exchange reserves are government reserves of gold and foreign currency stored in the central bank or financial authorities, as well as government-owned gold and foreign currency in international monetary organizations.
The country's gold and foreign exchange reserves are a financial reserve, from which, if necessary, government debt payments can be made or budget expenditures can be made. In addition, the presence of reserves allows the Central Bank to control the dynamics of the national currency through interventions in the foreign exchange market.
The size of the country's gold and foreign exchange reserves should significantly cover the volume of money supply in circulation, ensure both sovereign and private payments on external debt and guarantee three months of imports. When such a level of gold and foreign exchange reserves is reached, the Central Bank is able to effectively control the movement of the national currency exchange rate and interest rates in the economy.
The amount of public debt
Public debt is the debt obligations of the state to individuals and legal entities, foreign states, international organizations and other subjects of international law.
Borrowed funds from the population, business entities and other countries are placed at the disposal of state bodies, turning into additional financial resources. Typically, government borrowing in various forms is used to cover budget deficits.
The source of repayment of government loans and interest payments on them are budget funds, where these expenses are allocated annually in a separate line. In conditions of increasing budget deficit or lack of funds to service the debt, the state may resort to restructuring its debts.
Possible debt restructuring schemes include:
- debt write-off - if a country's obligations exceed its expected solvency, then partial or complete debt write-off is possible;
- debt repurchase - some debtor countries have significant amounts of gold and foreign exchange reserves, and in this case the borrower is allowed to independently repurchase their own debts on the open market;
- securitization - the debtor country issues new debt obligations in the form of bonds, which are either directly exchanged for old debt or sold (in the case of sale, the proceeds are used to buy back old obligations).
Refinancing rate
Refinancing rate is the interest rate that the central bank uses when providing loans to commercial banks through refinancing.
The refinancing rate is an instrument of monetary regulation through which the central bank influences interbank market rates, as well as rates on loans and deposits provided by credit organizations to legal entities and individuals.
This factor is extremely important, because it determines the overall return on investment in the country’s economy (interest on bank deposits, return on investment in bonds, level of average rate of return, etc.). When we talk about rates, we should be talking about real interest rates, that is, the nominal interest rate minus the inflation rate.
By reducing or increasing the base rate, the Central Bank can strengthen or weaken the interest of commercial banks in obtaining additional reserves by borrowing from it. When the rate decreases, the cost of borrowed money decreases, and, as a result, the volume of corporate investment and household spending increases, stimulating GDP growth. Conversely, rate hikes curb investment and spending, which slows economic growth.
Monetary indicators
It should be noted that in different countries the approach to determining the composition and volume of the money supply may be different. Typically, economists use the following definitions for it:
- M0 = cash in circulation;
- M1 = M0 + checkable deposits;
- M2 = M1 + checkless savings accounts + money market deposit accounts + small time deposits (less than $100 thousand) + money market mutual funds;
- M3 = M2 + large time deposits (over $100 thousand)
Cash and checkable deposits held by the government, banks, or other financial institutions are excluded from M1 and other money supply measures. This is necessary to avoid double counting.
Most often, when talking about the money supply, they refer to M1, because its definition covers only those components that are directly and directly used as money circulation. At the same time, the money supply in the form of cash constitutes only a small share of it. In the population's payments, plastic cards are gradually replacing cash from real circulation; the share of non-cash payments using settlement and current accounts and checks - obligations of commercial banks and savings institutions - accounts for up to 90% in developed countries.
M2 includes, in addition to the M1 components, highly liquid financial assets, which, although they do not function directly as a medium of exchange, can, if necessary, easily and without the risk of financial losses be converted into cash or checkable deposits - components of M1 - for example, short-term government securities, checkless savings accounts, time deposits.
M3, in addition to the components of M2, also includes large time deposits, which are usually owned by business entities in the form of certificates of deposit; they can also be converted into checkable deposits if desired. Such certificates have their own market and can be sold at any time, although this involves the risk of financial loss. Sometimes the M3 category also includes even less liquid financial assets - government securities, which can be converted to the M1 category.
Payment balance
Balance of payments is the ratio of payments received by a given country from abroad and payments made abroad during a certain period of time (year, quarter, month). The balance of payments includes payments for foreign trade operations (trade balance), services (international transport, insurance, etc.), non-trade operations (maintenance of representative offices, secondment of specialists, international tourism), as well as payments in the form of interest on loans and in the form of income from investment . The balance of payments includes the movement of capital: investments and loans.
The balance of payments characterizes the ratio of the amounts of payments made by a country abroad during a certain period of time and received into the country during the same period.
The balance of payments consists of three main sections:
- trade balance;
- balance of services and non-commercial payments (balance of “invisible” transactions);
- balance of capital flows and creditors.
Unemployment rate
Unemployment is a socio-economic situation in which part of the active, working-age population cannot find work that these people are capable of performing. Unemployment is caused by an excess of the number of people wanting to find work over the number of available jobs that match the profile and qualifications of applicants for these jobs.
The following types of unemployment are distinguished:
1. Frictional unemployment is associated with the search for or expectation of work in the near future. Given the freedom to choose a profession, type and type of activity, some workers find themselves in a position “between jobs.” Some voluntarily change jobs, others are fired and are looking for new jobs, and others lose their seasonal jobs. This type of unemployment is inevitable, and even desirable, because... many workers change their type of activity to a more qualified and highly paid one, and thus there is a more rational distribution of labor resources.
2. Structural unemployment occurs due to a fall in demand for labor in any industry - for example, when, with the development of technology or changes in consumer demand, the need to produce a particular product disappears. At the same time, the experience that workers in this industry have turns out to be unclaimed, so it takes time for them to learn a new profession or move to another region where there is a demand for their services.
3. Cyclical unemployment occurs during a downturn in the economy, when demand for goods and services decreases, employment decreases, and, as a result, unemployment increases. Therefore, cyclical unemployment is sometimes called demand-side unemployment.
Leading, coincident and lagging indicators
Economic indicators by their nature (the sequence of changes in the macroeconomic system) can be divided into three large groups - leading indicators, coinciding indicators and lagging indicators. Almost any indicator can be assigned to one group or another, but the degree of correlation of different indicators in relation to the stage of the economic cycle (economic trends) may be different.
The National Bureau of Economic Research (NBER) has been researching and analyzing economic indicators since 1938. The list of components of leading, coinciding and lagging indicators is periodically revised. For all indices, the base value of 100 is taken in 1967, and all series are given in 1972 prices (dollars), unless otherwise specified.
Leading indicators. The composite leading indicator index consists of 11 series of measures of marginal employment adjustment; capital investments; investment in inventory; profitability; cash and financial flows. The Leading Indicators Index includes:
- The average number of working hours spent on production, or the number of workers engaged in productive activities (excluding managerial personnel).
- The weekly average of initial claims for state unemployment insurance programs.
- New orders to the manufacturer.
- Efficiency of product delivery to wholesale trade.
- Contracts and orders for production equipment.
- Index of permits for new construction of private housing.
- Changes in on-hand and ordered inventory.
- Changes in elastic prices for materials.
- Stock price index (1941-1943 = 10).
- Real money mass, M2.
- Changes in the volume of outstanding consumer and business loans.
The first two sets of measures relate to labor market adjustment and are inversely related: as the number of hours worked/workers increases, the volume of new claims for unemployment insurance benefits decreases. The next two rows link orders and deliveries and are also in inverse proportion: with an increase in orders and the creation of tension in the delivery system, the quality of the latter’s work suffers. Rows 5-7 measure investment in fixed capital, which is an indicator of long-term economics. prospects and directly follow economic trends. The eighth row takes into account changes in inventories. Rows 9 and 10 show profitability by estimating costs and profits under normal business activity. The last two rows are indicators of the money supply and the availability of credit funds.
The LEI index value itself is constructed from these components in the form of a weighted average:
They tried to select the weights of the composite index in different ways, but recently statisticians have come to the conclusion that in the simplest case, with the same weights, the indicator works no worse than in more complex options.
This index is based on the idea that the main motivating force in the economy is the expectation of future profits. In anticipation of increased profits, companies are expanding the production of goods and services, investing in new plants and equipment; Accordingly, this activity decreases when a decline in income is expected. Therefore, the index is designed so that it covers all major areas and indicators of business activity: employment, production and income, consumption, trade, investment, inventories, prices, money and credit.
The US LEI is published monthly, towards the end of the month. The leading economic indicator tends to grow at a rate of about 0.2% during expansion, and on average 0.1% during recovery; in a recession it falls at an average rate of 0.3%. It should be borne in mind that the volatility of the LEI is quite high: in the growth stage the average deviation from the average is about 0.8%, and in the recession up to 1.2%. The main role of the indicator is to predict cycle turning points.
Match indicators. The complex index of coincidence indicators consists of 4 series, which take into account employment, personal income, industrial production and product sales. May products. The highest and lowest values of these series generally coincided with general trends in the economy. The actual rows used are:
- Number of employees, excluding those employed in the village. X.
- Personal income minus transfers.
- Industrial production index.
- Sales of manufactured products. The matching indicators are grouped into three categories: employment, production and income, and consumption.
Lagging indicators. The complex index of lagging indicators consists of 7 series, which take into account employment, inventories, profitability, financial conditions. market. The highest and lowest values of these series generally occurred later than the peaks and troughs of the corresponding business cycle, so they are associated with some inertia or adaptive expectations. These series include the following:
- Average duration of unemployment.
- The ratio of inventories to sales volume in the areas of production and trade.
- Labor cost index per unit of output in manufacturing.
- Average base rate.
- Outstanding loans to commercial and industrial enterprises.
- Ratio of consumer loan with installment repayment to personal income.
- Changes in the consumer price index for services.
With the exception of the employment series, which is countercyclical, these indicators track economic trends directly, with a slight lag. Lagging indicators are used to confirm that a peak or trough has already been passed. If the obvious peak in the coincidence indicators is not followed by a corresponding peak in the lagging indicators, BUSINESS CYCLE turning points will not be established.
Consumer Sentiment Indices
In the US, three statistical data providers offer indicators that measure the public's willingness and confidence to spend money on various goods in the near future:
- University of Michigan's Consumer Sentiment Index;
- Conference Board - Consumer Confidence Index;
- ABC News and Money magazine - opinion poll.
The indicators are based on various surveys of public opinion about the conditions of today and the near future (from 6 to 12 months) - how favorable they are for solving financial problems, purchasing durable goods, employment, etc. From the received answers of the “better/worse” type, indicators are constructed in the form:
- 100 +% better - % worse;
- better / (better + worse);
- better - worse (4-week average).
The period covered by the indexes (and, accordingly, the frequency of publication) is from a week to a month. Consumer sentiment indices are leading indicators; They take minimum values in recession, slightly larger average values in recovery and maximums in expansion. They are influenced by many factors, and the nature of this influence itself changes: sometimes consumers are more concerned about inflation than unemployment, then this ratio changes, etc. As benchmarks for foreign exchange markets, these indicators become most important during periods of national crises (oil crises, stock market crash of 1987, Gulf War of 1991, presidential elections, etc.)
Since prices change continuously due to many factors, it is necessary to reflect such changes. The level of price changes is determined using a price index.
Two types of indices are used: the Paasche index and the Laspeyres index.
The Paasche index evaluates the change in the general price level as part of the national product according to the level of weights of the current period of time
where I р – Paasche index
р i,0 and р i,1 – unit price of product i in the base and current period
q i,1 – quantity of unit i of product in the current period
n is the total number of prices and corresponding products.
The Laspeyres index is used to assess changes in the general price level according to the level of weights of the base time period:
where I l is the Laspeyres index
р i,t – unit price in the current year
р i,0 – unit price in the base year
q i,0 – number of units of production in the base year.
The most common are:
– consumer price indices (calculated on the basis of the consumer basket);
– industrial price index (shows the direction of change in prices of industrial goods at the time of their initial sale to the distribution network);
– GDP deflator.
The GDP deflator is a price index in which the basket of final products covers all goods included in GDP
21. Unemployment, its types and socio-economic consequences. Unemployment rate indicators. State employment policy
Unemployment is temporary lack of employment of the economically active population. According to the definition of the International Labor Organization (ILO), an unemployed person is a person who is able to work, but, without having a job, is actively looking for one. The main types of unemployment are frictional, structural And cyclic.
Friction unemployment is associated with the movement of people from one job to another (due to a change of residence, advanced training).
Structural unemployment arises in connection with the introduction of scientific and technological progress into production (the extinction of some professions - glass blower, typist, the emergence of new ones - IBM operators). These two types of unemployment always occur. Structural and frictional unemployment form a natural unemployment rate of 6-7% (at Q f.e. 1) (Figure 28.1).
Cyclic unemployment is related to economic cycles and represents the deviation of the actual level of unemployment (at Q 1) from the natural one (at Q f.e. 1). It is associated with insufficient aggregate demand for goods and services (AD) (Fig. 28.3).
Rice. 28.3. Actual and potential GNP
Unemployment due to equipment downtime leads to significant economic losses in goods and services. As a result, a certain part of GDP is not produced. The relationship between GDP losses and unemployment is determined by W. Okun's law: every 1% increase in unemployment above its natural level leads to a lag in GDP by 2.5%.
The unemployment rate is defined as the ratio of the number of unemployed (N b/r) and the number of labor force (N r/s), which consists of employed and unemployed
.
The current situation in Russia is characterized by the existence of significant imbalances in the structure of employment, wage rates in the labor market and deformation of the motivational mechanism of labor activity. The minimum wage in Russia is several dozen times lower than that established in the United States, and the average in terms of purchasing power has become the minimum wage and allows the reproduction of only low-skilled workers. There is practically no incentive for highly qualified labor. All this is accompanied by a significant decrease in labor productivity.
Birth rates and average life expectancy have dropped sharply. In Russia, the average life expectancy is currently only 59 years.
In the 90s, the prevailing trend was an absolute and relative reduction in the number and share of people employed in industry, construction, and the military-industrial complex. The average number of people employed at large enterprises in most industries is decreasing from year to year.
The slight increase in employment in the private sector and in market structures does not compensate for the decline in employment in traditional sectors of the economy (industry, construction). At the same time, employment in science and in industries related to advanced technologies is declining.
Immigration abroad of scientific and highly qualified personnel causes enormous damage to the country's economy. The economic downturn leads to underutilization and degradation of jobs, which will limit the demand for labor in the future.
If we take a segment of the labor market that includes those employed in the public sector and public sector workers, we can identify the following features. In Russia, during the crisis, workers in public sector sectors and areas traditionally belonging to the public sector are ready to work more at the expense of free time and increase the labor supply with the slightest increase in wages or even while maintaining it at the same level in order to have at least some funds to existence in the future.
Today, more than 25% of the population has an income below the subsistence level; the share of wages in GDP is slightly more than 30%. At the same time, almost 70% of all employed people receive only 30% of all income.
Another feature of the Russian labor market is that a significant number of employees work (go to work) without actually receiving wages at all, which are delayed for several months. At the same time, non-payment (delays) of wages have become the rule rather than the exception in recent years.
The financial and banking, trade and intermediary spheres, as well as the spheres of public administration, have an already established segment of the labor market, which is characterized by a high level of monopolization, high requirements for the qualifications of workers and high wages. It is quite difficult for those employed in the traditional public sector to penetrate these sectors.
A significant sector of the shadow economy has been formed and exists in Russia (about 40% of GDP). However, it is quite criminalized, unstable and therefore unattractive for law-abiding citizens. Therefore, for the majority of the working-age population today there is no real alternative to employment. Thus, today's Russian labor market is characterized by imbalance and disequilibrium.
The prospects for the Russian economy to emerge from the crisis largely depend on the choice of employment model and the application of effective methods of regulating the labor market in order to eliminate imbalances and deformations.
