A boom and bust economy refers to an economic cycle characterized by periods of rapid expansion followed by periods of sharp contraction or recession. The term "boom" alludes to a period of widespread economic prosperity, where business activity, production, employment, and consumer spending flourish. This phase often involves an increase in investments, a surge in demand for goods and services, rising wages, and overall economic growth. During a boom, there is typically a positive sentiment in the market, leading to increased optimism and potentially unsustainable market speculation.
However, the boom phase eventually gives way to a "bust" or downturn, characterized by a significant decline in economic activity. This downturn encompasses multiple sectors, such as decreased investments, reduced consumer spending, declining profits, increased unemployment, and dwindling business confidence. Busts usually result from factors such as excessive speculation, unsustainable credit expansion, economic imbalances, or external shocks. The sudden change in economic conditions leads to a contraction, creating a negative ripple effect throughout the entire economy.
A boom and bust economy often exhibits cyclical patterns, with periods of growth followed by periods of decline. These cycles can be short-term or long-term, driven by various economic factors and often influenced by government policies, global events, or technological advancements. The term "boom and bust economy" is typically used to depict the inherent volatility and instability associated with such economic cycles, highlighting the fluctuating nature and potential risks that economies may experience.
