What is boom?

The boom ( “Boom” ) is an economic cycle as part of the economic cycle. Essential characteristics of the boom are full employment, production at the limit of capacity, strong demand and rising prices. This is why it is also known as a boom. In terms of the business cycle, the boom is the turning point from which the economy declines again and then moves into the downturn.

In this lesson we will show you the main characteristics of the boom and how they typically develop. Finally, we give you the opportunity to test your knowledge with a few exercise questions.

Why is the boom important?

According to wholevehicles, the boom is part of the business cycle and thus describes a phase in the development of an economy. You should know these and all other economic phases well in order to better assess the current economic situation and make appropriate decisions.

Boom: phases of the business cycle

Essential characteristics of a boom

  • Increasing growth rates
  • Growing demand for loans and high interest rates
  • full employment
  • Rising wage level
  • Rising prices

Course of the boom

Phase 1: Features of the boom

The boom is also known as a boom. This economic phase is characterized by strong economic activity, which is primarily noticeable through the production of goods and services at the limit of capacity.

Typically, during a boom, there is full employment and companies compete for skilled workers. At the same time, the wage level continues to rise. The same also applies to prices and interest.

Phase 2: turning point

During the boom, the turning point is passed, from which the economy starts to decline again. This is first shown by falling growth rates and a further increase in real national income is no longer possible from this point on. Nonetheless, production continues to rise until the economy overheats.


Phase 3: overheating

In the course of this overheating, there is a significantly increased demand for credit and bad investments are being made more and more frequently. These result from overly optimistic expectations on the part of market participants.

Due to the higher demand for loans , interest rates continue to rise, which is becoming more and more of a problem for many companies. The market is now considered saturated, which has a number of other negative consequences.

Phase 4: downturn

A stagnation or even a decline can be observed in the first sub-markets. Meanwhile, the market volume shows only a slight increase and there is a gradual decline in prices. As a result of the increasing consolidation and concentration processes, the optimistic expectations on the market are gradually turning.

The polypolistic market structures are increasingly giving way to an oligopolistic structure, which is characterized by the fact that small and less productive companies are gradually disappearing from the market. From this point on, the economy turns into a downturn ( recession ).


About the author