An economic crisis is a state of the country's economy when there is a significant decline in production, well-functioning production ties cease to function, large and small firms go bankrupt, and the unemployment rate rises sharply. As a result, the incomes of the population fall, and many find themselves below the poverty line.
Causes of the crisis
When talking about the causes of the crisis, most economists point to a market imbalance. The supply of goods exceeds demand, and people stop buying goods. Enterprises are forced to reduce the price of their products. The money received no longer pays for production, as a result, entrepreneurs go bankrupt. Therefore, they often talk about the "crisis of overproduction." The decline in household incomes leads to an even greater drop in demand and causes a new wave of plant closures and layoffs.
N. D. Kondratyev presented the development of the economy in the form of large cycles, in which the crisis is only a natural part. The cycle consists of stages: initial, when everything seems to be in order, - crisis - depression - economic recovery. These cycles are associated with the development of science and technology, which leads to the emergence of new industries that begin to develop rapidly. At the same time, old industries are falling into decay. The crisis begins with them. Crises in the economy can also be associated with war, natural disasters, etc.
Types of crises
Economists talk about two types of crises - recession and depression. Recession - when the economy experiences a drop in the level of production, that is, negative GDP, for at least six months. At the same time, the fall does not reach its minimum.
Depression is a very strong, deep or prolonged recession, when the volume of production drops significantly and this state persists for a very long time, sometimes several years.
The Great Depression of the 1930s is a classic example of severe depression. Between 1929 and 1933, production in the United States fell 30%. In 1933, about a quarter of the working-age population was unemployed. Firms were unable to sell their products and closed their factories and offices in huge numbers.
The consequences of crises are very significant for the social life of countries. For example, due to the crisis, interest in religion is growing, mortality from various diseases is increasing, the number of suicides is growing, there is an increase in alcoholism and the population consuming cheap drinks. Crime is on the rise. Tourism is sharply reduced.
Crises heal the economy by destroying backward methods of production. And it is precisely the crisis that pushes people to search for new ways of managing the economy, which ultimately leads to economic recovery.
