Economics
Boom and Bust
Boom and bust refers to the cyclical pattern of economic expansion (boom) followed by contraction (bust). During a boom, there is high economic growth, increased consumer spending, and rising asset prices. However, this is often followed by a bust, characterized by a downturn, decreased consumer confidence, and falling asset prices. These cycles are a natural part of the economic system.
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5 Key excerpts on "Boom and Bust"
- Claus Weihs, Ullrich Heilemann, Ullrich Heilemann, Claus Weihs(Authors)
- 2010(Publication Date)
- Duncker & Humblot(Publisher)
Still, important self-sustaining or endogenous elements undeniably exist in business cycles and it is mainly their study that promises progress in analysis and forecasting. Some prominent economists have worked in this difficult area with impressive results. They succeeded in describing what happens during expansions and contractions, and how one phase gives way to the other. These advances led to the acquisition of considerable tested knowledge of what caused specific fluctuations of the past. As defined and observed, the business cycle has a standard two-phase breakdown: a trough-to-peak expansion and a peak-to-trough contraction. Further subdivisions or classifications, however, are more complicated. Of the diverse suggested taxonomies, none has been generally accepted. However, much of the work has been revealing, and the resulting terms such as “recession,” “depression,” “revival,” “boom,” etc., are much in use. In this paper, I revisit the question of whether a multiple-stage conception of the business cycle is meaningful and applicable. The starting point is the distinction between business cycles and growth cycles, based on the classical decomposition of time series into trend, cyclical, seasonal, and irregular variations. The “contraction” (better known as recession, or when particularly severe, depression) suspends, without suppressing, the generally prevailing tendency of the market economy to grow. A recession ends at some point below the economy’s longer-term upward trend. The initial stage of an expansion is a rebound upward back to that trend. This is sometimes treated as a separate phase of “recovery.”It was frequently during the recoveries that the highest rates of growth in total economic activity were achieved. As the expansion proceeded, growth measured from a rising base tended to decline. As the economy regains and then exceeds its pre-recession peak, the recovery gives way to an above-trend growth phase.
eBook - ePubMeltdown
The Classic Free-Market Analysis of the 2008 Financial Crisis
- Thomas E. Woods(Author)
- 2009(Publication Date)
- Regnery(Publisher)
CHAPTER 4HOW GOVERNMENT CAUSES THE BOOM-BUST BUSINESS CYCLEWe take it for granted as a fact of economic life: plush times inevitably give way to lean times, and back and forth in an endless cycle. Just as the moon waxes and wanes and the tides ebb and flow, the economy goes through booms and busts.The median home price across all U.S. cities increased by 150 percent from August of 1998 until August of 2006. Over the next two years, home prices fell by 23 precent.1 Foreclosures and defaults skyrocketed.The stock market has followed a similar course. When the New York Stock Exchange closed on October 9, 2007, the Dow Jones Industrial Average was 14,164.53, the highest close ever. Thirteen months later, on November 20, 2008, it closed at 7,552.29, a drop of 46.7 percent.Busts always bring with them some personal pain. This time, the pain is more visible than usual. Retirement portfolios have been eviscerated. Unemployment has increased. By November 2008, unemployment was up to 6.7 percent. When the figures are compiled the way government calculated them in the 1970s (before it started massaging the data to make the employment picture look prettier) the unemployment rate in November was an astonishing 16.7 percent.2The personal dimensions of these busts are always used to justify government intervention, whether creating a “safety net” or drawing up new regulations aimed at smoothing out the cycle that is supposedly inherent in the free market.But is this really so inevitable? Is the market economy really prone to such sudden and inexplicable episodes of massive business error, or could something outside the market be causing it? This is not just an academic question. The American people, currently suffering as a falling tide lowers all boats, need and deserve the answer.As politicians and our media drones talk about what to do next, they promise us ways to prevent another meltdown like the one we’re suffering through now. If they’re going to come close to succeeding, they need to understand the causes of the business cycle. What causes these violent swings?
eBook - ePub- (Author)
- 2023(Publication Date)
- Wiley(Publisher)
In the lessons that follow, we describe credit cycles, introduce several theories of business cycles, and explain how different economic schools of thought interpret the business cycle and their recommendations with respect to it. We also discuss variables that demonstrate predictable relationships with the economy, focusing on those whose movements have value in predicting the future course of the economy. We then proceed to explain measures and features of unemployment and inflation.Learning Module Overview
- Business cycles are recurrent expansions and contractions in economic activity affecting broad segments of the economy.
- Classical cycle refers to fluctuations in the level of economic activity (e.g., measured by GDP in volume terms).
- Growth cycle refers to fluctuations in economic activity around the long-term potential or trend growth level.
- Growth rate cycle refers to fluctuations in the growth rate of economic activity (e.g., GDP growth rate).
- The overall business cycle can be split into four phases: recovery, expansion, slowdown, and contraction.
- In the recovery phase of the business cycle, the economy is going through the “trough” of the cycle, where actual output is at its lowest level relative to potential output.
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In the expansion phase of the business cycle, output increases, and the rate of growth is above average. Actual output rises above potential output, and the economy enters the so-called boom phase.
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In the slowdown phase of the business cycle, output reaches its highest level relative to potential output (i.e., the largest positive output gap). The growth rate begins to slow relative to potential output growth, and the positive output gap begins to narrow.
- Andrés Solimano(Author)
- 2020(Publication Date)
- Cambridge University Press(Publisher)
10 2 Recession and Depression An Overview of Theories and Empirics 2.1 Introduction Before continuing with the analysis of actual experiences of economic slumps (recessions and depressions), this chapter reviews main conceptual approaches to understand slumps and the interactions between policies, shocks, and recessionary cycles. 2.2 Business Cycles, Recessions, Depressions, and Recoveries The amplitude and duration of a whole business cycle can be measured from peak to peak or from trough to trough. In addition, a distinction is made between the phase of expansion of a cycle – running from trough to peak – and the phase of contraction (recession) that is measured from peak to trough (see Figure 2.1 ). A trend line often represents the medium-run evolution of output, around which we observe short-term fluctuations. Another way to see a business cycle is as a temporary deviation in the level of output (total Gross Domestic Product (GDP), per capita GDP, industrial production) from the trend (Figure 2.2a) or a more permanent reduction in the level of output (Figure 2.2b ). Empirically, using quarterly data, a common definition of a recession is a sequence of negative growth lasting for at least two consecutive quarters. 1 Some add to this definition an unemployment rate approach- ing 10 percent. If we use annual data, we may define a recession as at least a year of negative growth. Economists tend to distinguish between mild to moderate recessions and depressions, with the latter describing deep 1 See the methodology of the National Bureau of Economic Research of the United States. 11 2.2 Business Cycles, Recessions, Depressions, and Recoveries and protracted contractions in economic activity. Some may apply the term “depression” to permanent decelerations in output growth relative to some historical averages.
eBook - PDF- John E. Marthinsen(Author)
- 2020(Publication Date)
- De Gruyter(Publisher)
Chapter 14 Business Cycles What are business cycles, and why are they important to business managers? What causes them, and who determines when recessions or expansions start and end? After centuries of fluctuating economic activity, have nations gotten better at controlling or predicting business cycles, or are they as frequent, extreme, and fickle as ever? The Basics What Are Business Cycles? Business cycles are recurring , irregular , and unsystematic movements in real economic activity around a long-term trend. They are recurring because down-turns and upturns in real economic activity have occurred for as far back as his-tory is written, and these cycles will surely continue in the future. Unlike the smooth and symmetric patterns of sound or light waves, business cycles are ir-regular and appear as jagged, uneven movements around a long-term trend. Business cycles are also unsystematic, which means they are random and diffi-cult (some believe impossible) to predict. A considerable amount of time and effort has been devoted to predicting business cycles. Unfortunately, most of these predictions have been highly inaccurate. How Are Business Cycles Measured? Figure 14.1 shows a hypothetical business cycle. A recession occurs when there is a significant contraction in economic activity, which is spread broadly across the economy and lasts for more than a few months. The duration of a recession is from the peak of the business cycle to the trough (i.e., low point). An expansion is precisely the opposite. It occurs when broad-based eco-nomic activity improves significantly and is sustained for more than a few months. The duration of an expansion is from the cycle ’ s trough to its peak. The entire business cycle can be measured from one peak to the next peak, or it can be measured from one trough to the next. In Figure 14.1, the business cycle is measured from peak to peak. https://doi.org/10.1515/9781547401437-014
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