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What Is a Business Cycle Boom?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 27 November 2014
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A business cycle refers to periods of expansion and otherwise in a national economy. It tracks the growth of the economy through various phases within the designated timeframe. The duration of a business cycle varies and depends on stated parameters. In general, business cycles are calculated on a quarterly basis per year. A business cycle boom refers to a period within a business cycle when there is a very strong expansion and growth in the economy. A phase of a business cycle includes a period of growth and a period when the business cycle is at its peak.

If the period of growth experiences some factors indicating rapid economic boom activities, then the economy may be said to be experiencing a boom. Part of the indicators of a boom includes factors like a surplus of credit and increased spending capacity. There is a lot of demand for goods and services, which lead to an increase in the employment rate as businesses try to take advantage of the increase in consumer spending power and a parallel increase in demand for goods and services.

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During a business cycle boom, the laws of demand and supply may work together to create an inflation. Excessive demand for products leads to an increase in the prices of products. This is especially true in a boom in which the demand often surpasses the supply of the products. For instance, during a business cycle boom, the demand for houses usually goes up. The excessive demand for available houses almost inevitably leads to an increase in the prices of such homes. When the boom comes to an end or during a period of inflation, the prices of such houses usually drop sharply to reflect the sudden reduction in their demand.

As such, one of the identifying factors of a business cycle boom is a rise in the level of inflation in the economy. During a boom, the consumers are usually less cautious and guarded about spending money. The issue of prioritizing is often relegated as consumers tend to spend more. It is also easier to borrow money for reasons like buying a home and making other major purchases. Consumers may also invest more during this period as companies show strong profits from the increased demand of products and services. Another indicator of a business cycle boom is an increase in the number of new companies that are started with the aim of capitalizing on the excessive demands for products and services.

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ddljohn
Post 3

How many years does it take for a business cycle to complete? Does it take a very long time? If it's less than ten years, won't consumers spend less money with each new boom cycle?

For example, let's say that the US economy was in a recession a few years ago. Now, the economy is picking up again and I have more money to spend. I don't think I would spend as much as I used to because I will still remember the financial problems I had during the last recession. I'll try to save some of my money for a similar emergency.

If this were to occur, won't it cause the economy to grow at a lower rate during each new economic boom?

ZipLine
Post 2

@fify-- Inflation is definitely a big component of it.

You are familiar with the business cycle right? The cycle is composed of a boom, a peak, a recession and a trough. So the economy grows during the boom stage, reaches a peak where demand equals supply. Then demand overtakes supply and the economy enters downfall. Eventually it will experience recession and a trough which is the opposite of a peak.

When demand is higher than supply, prices increase. Meanwhile, inflation becomes very high which causes GDP to decrease. The value of the national currency goes down, investment decreases and unemployment increases. This will continue until demand falls and matches supply. After the economy hits a trough, it will start growing once again and enter a boom stage.

fify
Post 1

I have homework on this for macroeconomics class. Can anyone help me understand why the economy doesn't always stay in the boom cycle? Is it because of inflation?

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