Answer to Question #69853 in Macroeconomics for Clarissa
Give two concrete example of sunspot theory. Why does poor countries takes too long to complete one business cycle?
This is perhaps the oldest theory of business cycles. Sun-spot theory was developed in 1875 by Stanley Jevons. Sun-spots are storms on the surface of the sun caused by violent nuclear explosions there. Jevons argued that sun-spots affected weather on the earth. Since economies in the olden world were heavily dependent on agriculture, changes in climatic conditions due to sun-spots produced fluctuations in agricultural output. Changes in agricultural output through its demand and input- output relations affect industry. Thus, swings in agricultural output spread throughout the economy. The concept of sunspot equilibrium was introduced by David Cass and Karl Shell in 1983, with the term 'sunspot' being something of a spoof on the work of the 19th-century economist Jevons, who related the business cycle to the cycle of actual sunspots. Shell notes that the best way to analyze bank runs and related financial-system weaknesses is as a sunspot-equilibrium outcome. The 2008 financial meltdown can be viewed as partly sunspot driven. Economic cycles in developed countries differ significantly from cycles in poor countries. 1. They do not have a phase of depression as obligatory, but if the fall is very deep and prolonged, the phase of the recession is called depression. 2. There is no clear distinction between revival and elevation. These phases are united into one, which is called the expansion of production. The top (boom) and bottom (bottom) points of the business cycle are allocated. 3. Determined by an egalitarian long-term economic growth - the trend, the fluctuations around which form the cycle. Also for developed countries, the crisis phase becomes an opportunity for further economic development. It stimulates the technological renewal of production, getting rid of outdated forms of production and management, strengthens the spirit of competition and activates the economic life of society, does not allow it to self-confront prospects for continued growth and prosperity. In poor countries, this is observed much less frequently. Sources: http://www.economicsdiscussion.net http://www.investopedia.com