Economic situation

An Economic situation is a sum of all changes in economic activity manifested in changes in basic economic indicators. These indicators are aggregate indicators defining the condition of the economy, for example GDP, GNP, investment, consumption, unemployment rates, and inflation.

The business climate reflects the cyclical course of the management process and refers to both the state and dynamics of economic phenomena and processes.

Division of business science

• theory of the business cycle,
• studies of cyclical fluctuations - they mostly concern the short and medium period.

Economic fluctuations

• trend - it represents in a systematic and regular manner long-term changes occurring at the level of a given phenomenon caused, for example, by changes in the supply of a factor, labor, capital, introduction of technical and scientific progress. It is a smoothed path depicting the development of production in the long run after elimination of short-term fluctuations,
• cyclical fluctuations - they are repeated with relative regularity and medium-term changes in economic activity. They expose themselves to the expansion or contraction of this activity around the trend line,
• seasonal fluctuations - include changes in business activity occurring during the calendar year,
• random fluctuations - are changes in business caused by unspecified reasons, which are of a random nature,

Features of cyclical fluctuations

• cover the entire economy,
• are of a short-term and medium-term nature,
• they repeat with relative regularity.

Causes of business fluctuations

• external (exogenous) causes - their source is outside the economic environment of the economic system. These are: wars, revolutions, discoveries of new deposits, demographic changes, technical innovations, natural phenomena.
• internal (endogenous) reasons - these are factors directly related to the economic system. These are: consumption demand, investment demand and government policy.

The business cycle

This is the period between two successive crises or periodically arising fluctuations of essential components, manifestations of economic life:

• production volume
• prices
• profits
• inflation rate

The economy is characterized by certain constant tendencies: increases, drops, stagnation. A sinusoid is marked out. Constant growth would be detrimental to the economy.

Characteristics of the economy in particular phases of the business cycle

• crisis - the economy then has a surplus of supply over demand. Producers have a problem with the sale of their products, and consequently, stocks grow in warehouses. Production is limited. The consequence is a fall in prices or a lower inflation rate. Revenues and profits in enterprises are declining. On the other hand, unemployment is increasing because entrepreneurs reduce the number of employees.
• depression - in this period there is a downward trend in production, employment, prices, profit, investment and consumption. Many enterprises go bankrupt because they are unable to use their potential production capacity. The decrease also concerns production efficiency. The supply is decreasing and, consequently, the prices are rising. There is also high unemployment.
• recovery - this phase is characterized by the growing interest of producers in increasing production. Investment demand is also growing . In this period, unemployment decreases. The increase in the income of the population and the increase in consumer demand are noticeable.
• flowering - during this period there is full use of production capacity. Everyone who is looking for a job most often finds it. At that time there is high sales and high profit rates. Investment and consumption demand is at a high level.

Economic situation — recommended articles

Demand shock — Business cycle — Cost inflation — Economic shock — External environment — Natural rate of unemployment — Austrian business cycle theory — Autonomous Investment — Structural inflation

References

• Kalthoff, H. (2005). Practices of calculation: Economic representations and risk management. Theory, Culture & Society, 22(2), 69-97.
• Mishan, E. J., & Mishan, E. J. (1967). The costs of economic growth (p. 112). London: Staples Press.