The term 'Boom' is included in the Economics edition of the Financial Dictionary. Get your copy on Amazon in Kindle, Paperback or Audio edition. Choose your edition here...
A boom is an economic expansion that happens when the economy of a country is growing at a rapid economic pace. Booms are more precisely commonly defined as periods in which the Gross Domestic Product expands at a faster rate pace than the long term economic growth trend rate.
Total demand of goods and merchandise proves to be high in boom periods. Businesses generally respond to this rising demand by boosting production and accompanying employment. Sometimes they will choose to increase their profit margins through raising their prices. Higher demands finally pressure limited resources. If sufficient extra capacity is not present to address the demand, then demand pull inflation can result.
Economic booms are characterized by numerous factors. Increasing, strong demands are mostly pushed by consumption in households. Ultimately, demand is furthermore boosted by exports, fixed investments, and government spending. Export growth results along with an expansion of world trade growth.
Along with greater demand comes higher wages and employment rates. Booms lead to increasingly tighter employment markets and better incomes for those working. This tightness in labor market conditions is most evident in lower unemployment rates. It is also seen in the labor force percentage that is working, the quantities of job openings that are not filled, and reports on labor shortfalls in particular careers and fields. The actual incomes of those people working in boom times increase rapidly as the demand for labor is high and numerous chances exist to increase earnings from higher productivity and more overtime shifts.
In booms, the tax revenues accruing to government rise rapidly as well. This results from rising employment and income levels. This has been called a fiscal dividend that comes from a sustained expansion. A budget surplus typically results that can be utilized to further public spending or to reduce the amount of outstanding government debt.
Booms further see the rising of company investments and profits. These in turn often result in greater amounts of capital investments. The amount and strength of the given demand has a great impact on how many investments are planned during the boom.
Productivity also rises during booms. These booms that happen in cycles are healthy for the productivity of labor. This is because in these times, businesses stretch their employees and resources to keep up with the additional demand by utilizing the companies’ resources more effectively and intensely. Productivity rises as a direct result.
Booms commonly also increase a country’s demand for goods and services that are imported. This is especially the case in countries that are huge importers in general, such as the United States and Great Britain. Rising imports lead to higher trade deficits, which have to be offset with cash or debt in payment.