Una propuesta idealista para la puesta en valor de estos yacimientos

Time

Notice that growth is faster than the long term trend during an expansion (from trough to peak) and slower (in fact, negative) than the long term trend during a contraction or recession. A recession is a period of at least two quarters (6 months) of negative economic growth (that is, a decrease in GDP, not just a decrease in the rate of increase of GDP). Generally expansions are much longer than reces-sions, usually being about 4 to 5 years in length as opposed to a year to 18 months.

Why is there a business cycle? The best explanation has to do with human emotions. Starting at the trough, confidence is at a low point, and has been in decline for some time. The good thing is that fac-tors of production are available and are often relatively cheap to buy or hire. Eventually some brave souls decide to take a chance and invest in business or property, and some other brave individuals who had delayed purchasing goods (especially cars and homes) as times had been uncertain decide to take the plunge and buy.

Real Output

These early risk-takers find that their decision was a good one. Business begins to pick up and investors make money and consumers find that as their incomes are rising they can begin to loosen their purse strings more. Thus, a virtuous circle of growth sets in - people gain confidence and they begin to save less and spend more which inspires businesses to invest in increasing capacity, which increases employ-ment and income, which further increases confidence.

Long Term Trend

Expansion

Trough

Peak

Real GDP

Contraction

We can express the business cycle as a diagram:

The economy does tend to grow in size over time. Economic growth occurs when real output, as measured by real GDP, increases over a certain time period. However, such growth

is not steady. Generally it is subject to what is known as the business cycle, which is the periodic or regular fluctuation in real national income/output/GDP over a period of time.

It should be said that borrowing money is the ultimate expression of confidence. We only borrow when we feel the future will be brighter than today. We borrow to buy assets when we are confident that those assets will rise in value. Businesses borrow to buy equipment or expand their operations when they are confident that their sales and profits will continue to grow. On the other hand, saving is an ex-pression of a lack of confidence in the future, as expressed in the saying "save for a rainy day."

However, all growth cycles do come to an end. Eventually, some 'trigger' event wakes some people up to the fact that some recent investments by firms are not likely to yield profits, or that home values or stock prices may be due for a fall. Having lost their confidence, these people begin to sell assets and start to save cash. This behaviour is noticed by others who begin to emulate them and soon more and more people are behaving this way, leading to a drop in spending and profitability and therefore asset prices. Pretty soon everyone is aware that the economy is in a downturn and everyone is trying to do the same, further exacerbating the situation. Unprofitable firms either close or lay off workers, causing unemployment which further depresses spending and asset prices. Eventually, after 6 - 18 months, the economy ends up at the trough of the cycle. Confidence is at zero, and the cycle can begin once more.

Another way to think about the business cycle is to think of the economy as a tree that needs regular pruning. During the expansions, confident businesspeople and consumers try out a lot of different ideas. This is like a tree growing a lot of shoots. Most of the ideas are good, but some of them are not.

The recession is the pruning of the tree. Ideally during a recession, the bad ideas are eliminated and the good ideas are given more resources to expand, leading to a revitalized economy.

The business cycle does contribute to instability in a market economy, which is why one of the macro-economic goals of government is counter-cyclical stability. However, it is also an indispensable part of what Joseph Schumpeter called the "creative destruction" of capitalism. During booms, people take chances and infrastructure is built and ideas are developed. During busts, the resources and ideas devel-oped during booms are refined and redirected and made more efficient. For instance, during the dot com technology boom of the late 1990s, a lot of telecommunications infrastructure was developed.

The bust in the early 2000s saw many of the internet and technology firms who did the work go bank-rupt. However, the broadband capacity they developed and installed remained behind to be exploited cheaply by other firms. YouTube could not have been a successful business in the 2000s without the over-investment of the 1990s in telecommunications technology and hardware by now-bankrupt firms like Nortel.

Another thinker, Nikolai Kondratieff, posited the existence of 'long waves' based upon different pack-ages of technological and economic advances. The creation of whole new sectors of the economy leads prices will never end and get over-confident and begin investing in some questionable business ideas (as the sensible ones have likely already been developed), begin paying too much for homes or stocks (in a speculative fever) or simply begin to borrow too much to finance their lifestyles. In a nutshell, the debts of firms and individuals begin to grow much more rapidly than profits or income.

to long periods of growth as the opportunities presented are exploited. Later the technologies become mature. Eventually, the old technologies must be dismantled in order for a new suite of technologies to emerge. For instance, the first industrial revolution (steam power, textiles) of 1800 - 1850 was followed by the second (steel, railways) from 1850 until 1900, which was followed by the age of petrochemicals and electricity from 1900 until 1950, which was in turn followed by the age of consumer goods and electronics from 1950 to 2000. Some thinkers believe we have been in a Kondratieff trough since 2000 as we await the growth of new industries like biotechnology, nanotechnology, and robotics.

Real Output

Aggregate Supply Aggr

egate Demand

P1

Y1

In lesson 43, when measuring the size of the macro-economy using the expenditure approach, we used the term aggregate demand. Aggregate demand is the total planned spending on domestic goods and services at various possible average price levels per period of time. As we saw before, aggregate demand can be broken down into consumption, investment, government spending, and exports - imports. As an equation,

Aggregate supplyis the total planned output of goods and services at various possible price levels per period of time. We can show aggregate demand and aggregate supply on a diagram as follows:

Price Level