Theories on economic cycles
There are numerous theories that try to explain
the reason for economic cycles. Amongst others, we can point out:
Changes in productivity:
fluctuations start and respond mainly to changes in the levels
of productivity due to tecnological innovations.
Monetary Cycles: variations
in the quantity of money provoke movement in the level of demand
and production. In the long term, the prices are adjusted so
that the offer of money, measured in real terms (refined by
the price effect), return to their initial level, cancelling
the initial positive effect.
Economic cycles and
stabilized politics
The government's economic policy aims to mitigate the fluctuations producing cycles,
with the intention of achieving a stable growth rate
in the long term, which requires prices controlled:
It
is a bad phase of the cycle with low unemployment, a high-inflationary
phase (ends generating a series of mismatches in the end leads to a
phase of economic stagnation).
Among the various stabilization measures to be taken by the government, there is fiscal policy and monetary policy.
In state
of recession: reducing taxes, increasing public spending, increased money supply, etc.. These measures can be taken individually or jointly.
In state
of expansion: The government will take measures contrary to the above, ie reduction of public spending, monetary tightening, and so on.
Taxes already operate as stabilizers:
If low income reduces tax revenues (which helps reduce the negative
impact of the fall) and when it rises increases recovery (moderate
growth in th economy).
Government
intervention in the economy with the intention of counteracting the
movements of business cycles has many
detractors, in fact, the results obtained with these
policies have historically been at times quite poor.
Critics
argue the public that governments tend to focus their demand action
policies, which have little long-term effect on the level
of output or employment. Understand why that would be more
effective supply-side policies.