What is an Economic Boom?

Definition: An economic boom is a period of outstanding economic growth or expansion. This term usually applies to a phase when output increases significantly with positive consequences in employment and prosperity.

What Does Economic Boom Mean?

The term economic boom generally refers to countries or regions enjoying positive overall performance. It is seen like a phase of optimism, confidence and development. For example, there was a boom in the United States during the 1920s when the Gross National Product grew 40% from 1921 to 1924. There are several conditions that might trigger economic booms, such as consumer and investor confidence and technological advances. In the example mentioned above, higher productivity in the automobile industry thanks to the Ford Company was a key driver for expansion in other industries.

In general, these favorable periods bring better living conditions for most of the population. As demand for most products and services increase, loans and credits commonly grow. Firms expand production and hire additional employees. That increasing demand for workers tends to push wages up. However, it is also common that inflation rises as a result of higher demand and the less affluent population groups face difficulties to afford basic goods and services.

Example

Businesses are usually benefited of this kind of progressive times because households have more disposable income and therefore are willing to spend in some indulgences such as new clothes or restaurants. Some families decide to invest in new houses or to buy a second car. In general, all socio-economic segments improve their wellness and people feel more assurance about future. Nevertheless, economic booms do not last too long.

They are often followed by downturns and businessmen must be aware of these economic cycles. Decision makers should take advantage of the economic booms by augmenting production and providing more sophisticated or innovative products. But at the same time, they must also be prepared for changing company strategies as soon as the peak seems to end.