A boom is a phase of rapid economic growth and expansion experienced by a country. More specifically, booms are often defined as periods when the Gross Domestic Product (GDP) grows at a rate faster than the long-term economic growth trend.
During boom periods, the total demand for goods and merchandise is high. Businesses typically respond to this increased demand by ramping up production and hiring more employees. In some cases, they may also choose to increase their profit margins by raising prices. The heightened demand can put pressure on limited resources. If there is insufficient extra capacity to meet this demand, it can lead to demand-pull inflation.
Economic booms are characterized by several factors. The strong, increasing demand is primarily driven by household consumption. Additionally, demand is further boosted by exports, fixed investments, and government spending. Growth in exports is often accompanied by an expansion in world trade.
Along with the greater demand come higher wages and employment rates. Booms result in tighter employment markets and better incomes for workers. This tightness in the labor market is evident in lower unemployment rates, the percentage of the labor force that is employed, the number of unfilled job openings, and reports of labor shortages in specific careers and fields. The actual incomes of those working during boom times increase rapidly due to the high demand for labor and the numerous opportunities to earn more from higher productivity and overtime work.
During booms, government tax revenues also rise rapidly, driven by increasing employment and income levels. This phenomenon is often referred to as a fiscal dividend resulting from sustained economic expansion. Typically, this leads to a budget surplus that can be used to increase public spending or reduce outstanding government debt.
Booms also see an increase in company investments and profits, which often lead to greater capital investments. The strength and amount of demand significantly influence the number of investments planned during the boom.
Productivity also rises during these periods. Booms that occur in cycles are beneficial for labor productivity because businesses push their employees and resources to meet the additional demand more effectively and intensively, leading to increased productivity.
Booms commonly increase a country’s demand for imported goods and services, particularly in countries that are large importers, such as the United States and Great Britain. Rising imports lead to higher trade deficits, which must be offset with cash or debt payments.
