What is the Boom And Bust Cycle?

A boom and bust cycle refers to a series of fluctuations in an economy in which there are persistent expansion and contraction of the economy. Boom and bust cycles affect different sectors and industries in an economy, for instance, when it occurs in the business cycle, businesses undergo fluctuations. In a boom cycle, industries and businesses enjoy surplus, high sales, and profit margin and significant business performance which in turn affects the overall economy. The reverse is the case in a bust cycle, this is the period business encounter losses, individuals are also subject to a decline in income and there is an overall shrink on the economy.

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Why the Boom And Bust Cycle in Important

Boom and bust cycles occur in different economies at different times, both cycles also last for different periods of time. According to a business report, 28 boom and bust cycles have occurred in the business cycle since 1929. Generally, boom cycles are times when there is a surplus of jobs, economic growth, growth of business and industries and enough money in circulation. Bust, on the other hand, is a period of economic struggle coupled with the scarcity of jobs, losses in investments and economic decline. In boom cycles, obtaining credits is easier and cheaper, the investor also records high returns on their investments. The bust cycle sets in when investors begin to make too much investment which creates a decline in the value of investments.

Additional Factors in Boom and Bust Cycles

While boom cycles are related to periods of economic growth, employment and presence of wealth in an economy, bust cycles are associated with periods of recession or depression in an economy. There are certain factors that lead to boom and bust cycles in an economy, for instance, malinvestment is a major cause of bust periods, this happens when investments are very cheap and there is too much supply of capital in an economy, thereby creating an excess investment. There are certain monetary policies that the government uses to restore confidence in an economy and lift the economy out of depression. Such monetary policies are created by the Federal Reserves or Central Banks.

Related Topics

• What is Government Spending?
• Autonomous Spending
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• Fiscal Policy
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• Contractionary Fiscal Policy
• Progressive vs Regressive Tax
• Marginal Tax Rates
• Proportional Tax
• Trickle Down Theory
• Discretionary Fiscal Policy
• Automatic Stabilizers
• Effects of Discretionary Policy (Interest Rates & Lags)
• Crowding Out Effect 
• National Debt
• Government Borrowing
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• Ricardian Equivalence
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• Stabilization Policy
• Robin Hood Effect
• Ricardo Barro Effect
• Automatic Stabilizers
• Standardized Employment Budget
• How Does Fiscal Policy Affect Interest Rates? 
• Crowding Out
• Types of Lag in Fiscal Policy
• Temporary and Permanent Fiscal Policy
• Limitations of Fiscal Policy?
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• Government Borrowing
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• Fiscal Policy Affects Trade Balances
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• Government Borrowing Affect Private Savings
• Ricardian Equivalence
• Fiscal Policy Affects Investment and Economic Growth
• Crowding Out of Physical Capital Investment?
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• Government Investment in Physical Capital
• Public Investment in Human Capital
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• Economic Cycle or Business Cycle
• Business Cycle Indicator
• Peak and Trough
• Recession and Depression
• Hard Landing vs Soft Landing
• Economic Bubble
• Boom and Bust Cycle
• Great Depression
• Baby Boomer Age Wave Theory

• Skyscrapper Effect (Economics)
• V-Shaped Recovery
• W-Shaped Recovery
• U-Shaped Recovery
• Kondratieff Wave Cycle
• Contagion
• Feedback Rule Policy
• American Customer Satisfaction Index
• CNN Effect
• Bureau of Economic Analysis
• Business Starts Index
• American Recover and Reinvestment Act
• Abenomics
• Emergency Economic Stabilization Act of 2008
• Commodity Credit Corporation
• Humphrey Hawkins Act

• Real Economic Growth Rate
• Fox-Trot Economy

• Stagnation
• Neoclassical Growth Theory
• Exogenous Growth Theory
• Endogenous Growth Theory
• New Growth Theory - Explained
• Classical Growth Theory - Explained
• Real Economic Growth Rate - Explained
• Plutonomy