Inventory, investment in fixed business, and technological innovation have now been significantly affected by economic cycles. There are various theories about the causes of economic cycles. Examples include short-term circulation with a cycle of 1-2 years, intermediate circulation of about 10 years, and long-term circulation with a period of 50 years or more. In the name of the economist who discovered them, they are called the chitin cycle, the juggler cycle, and the Kondrachev cycle, respectively.
DEFINITION
The Chitin cycle or also known as the chitin wave is a cycle that is said to occur in relation to the company’s “inventory”. For example, retail stores such as supermarkets and department stores do not always stock goods from manufacturers every day. If the economy is good, they buy a lot of products and stock them as inventory. However, there are times when they fail to read the condition of product stock sales so they don’t sell more than expected. In such cases, they usually refrain from buying and wait for the stock to decline. If retailers suddenly refrain from buying, manufacturers’ sales will fall sharply. This affects various economic activities in the world, and the economy will slow down. The explanation above is the idea of a chitin wave.
Second, The juggler cycle, is a wave caused by the “equipment” the company owns. For example, most companies today have computers in their offices, and factories use large machines such as industrial robots to make products. These facilities have a lifetime, so of course the equipment must be replaced regularly. In general, the service life of these facilities is around 10 years. So every 10 years, companies buy new equipment. If a company buys equipment, then the company that produces and sells the equipment will then have a lot of orders, thus increasing their income. It is the idea of a juggler wave that economic activity in the world becomes active because of this cycle.
Third, the Kondrachev Cycle, is a long-term wave caused by technological innovation. The industrial revolution that took place in the 18th and early 19th centuries and the invention of electricity in automobiles in the late 19th century are thought to have created long-term economic waves for 50 years. For example, currently many car manufacturers Toyota, Hyundai, BMW, etc. flocking to build electric-powered cars. So that the demand for nickel becomes more, because nickel is one of the main materials for making batteries.
The above are the types of economic cycles or economic cycles based on the time span of their occurrence. Of course there is a history and meaning to each of the names given to the economic cycle, but before discussing further, perhaps many of the readers do not understand what the economic cycle actually is. Basically the economic cycle is a phase or stages in the form of repeated fluctuations that occur in the economy known as cyclical fluctuations or business cycles. There are 4 stages or economic cycles, namely:
Expansion
The expansion phase is also known as the prosperity phase. At this stage, economic growth is at its highest point. In this phase, the level of production experienced a significant increase, and at the same time people’s purchasing power was also high. The unemployment rate is low, interest rates are generally low but will slowly rise along with increasing economic growth.
Recession
After experiencing an expansion phase, the economy will then enter a recession phase which is marked by a slowdown in economic activity. There was an increase in the unemployment rate and consumption decreased. Many companies reduce workers due to falling demand for goods and services in the community. The company’s production priority is only on goods and services that are able to provide added value in the eyes of consumers. In the end this will lead to a state of economic crisis.
Depression
Depression is the lowest point in an economic phase. This is as a result of a long-lasting economic recession, and at this phase the economic condition tends to be dangerous if there are no policies and efforts from the government to save the country’s economic condition. At this level, the economy is already very bad, unemployment continues to rise, prices of goods and services continue to soar, and poverty rates increase.
Recovery
In this phase, the worrying economic condition is slowly recovering. Production began to increase, unemployment gradually fell, people’s purchasing power slowly but surely began to recover. The government, business actors, and the community that synergize again will eventually push the economy back to reach its peak again.
Once the cycle is complete, it will start over again and continue to cycle through the phases, but no one can be sure how long each phase lasts and how long it will take to complete the cycle. In reality, the expansion phase can last for years before finally reaching its peak, as can the other phases. Well, economists divide the economic cycle based on the length of the cycle into 3, namely:
Kitchin or short cycle
This is a typical economic cycle that only lasts about 40 months. As the name implies, the Kitchin cycle was discovered by Joseph Kitchin in 1920. In this cycle, the market is ‘flooded’ or a flood of commodities while on the other hand demand falls, which in turn makes commodity prices fall. The occurrence of this short economic cycle is believed to be due to information that influences decisions and policies of commercial companies. In the end, the excess supply in this market is a signal for companies to reduce output, but of course there is a time lag before this information finally reaches producers.
Juglar or big cycle
The Juglar Cycle is an economic cycle that lasts for 7 to 11 years. This cycle is often referred to as the main cycle. True to its name, this cycle was identified in 1862 by Clément Juglar, a physician and statistician. In the Juglar economic cycle, it can be clearly observed the oscillations or the transition of investment into fixed capital and changes in the level of capital utilization such as production machines or other business support equipment such as computers with a service life of between 7-11 years. When the useful life of the economy ends, manufacturing companies and other businesses will again be excited to produce new goods in accordance with the increasing demand.
Kondratiev or long wave
Also called super cycle, long wave, K wave. This cycle has a duration of approximately 50 years. This cycle was identified by an economist from the Soviet Union named Nikolai Kondratiev. Kondratiev, sometimes spelled “Kondratieff”, identifies three periods characterized by slow expansion and contraction of economic activity between 40 years and older. 60 years. In this cycle there is an alternating pause between high sectoral growth and relatively slow growth. It is said that the long cycle will affect all sectors of the economy. Kondratiev’s focus was on prices and interest rates. He argues that the wavelength will be strongly influenced by rising prices and low interest rates, while decreasing waves are influenced by falling prices and high interest rates.
