Pearson Edexcel · A-Level · Economics B
Course version: 9EB0 · Version from Sept 2015
The economic cycle: b) Characteristics of a boom
A boom is a phase in the economic cycle characterised by rapid economic growth, where actual GDP rises above the long-term trend line, creating a positive output gap.
Checked against the Pearson Edexcel 9EB0 specification (opens in a new tab) on .
- Point 2 of 3
- 2 key terms
Study notes
From the checked teaching notes for this specification point.
The idea
A boom is a phase in the economic cycle characterised by rapid economic growth, where actual GDP rises above the long-term trend line, creating a positive output gap. During a boom, aggregate demand is high, leading to increased production and falling unemployment as businesses hire more workers. Consumer and business confidence are strong, encouraging higher spending and investment. For example, a boom often sees rising property prices and increased demand for luxury goods. However, this rapid expansion can lead to demand-pull inflation, as the economy operates near full capacity, causing prices to rise. Imports may also increase as consumers buy more foreign goods, potentially worsening the current account balance.
What earns the marks
- Identification of a boom as a period of rapid real GDP growth above the long-term trend.
- Recognition of low unemployment and high job vacancy rates during a boom.
- Understanding that high aggregate demand leads to strong consumer and business confidence.
- Awareness that a boom often triggers demand-pull inflation due to capacity constraints.
- Knowledge that the current account of the balance of payments may worsen due to high import demand.
Common mistakes and how to put them right
Assuming a boom is entirely beneficial.
Put it right: While employment is high, a boom often causes harmful demand-pull inflation and can worsen the trade balance.
Confusing high economic growth with high economic development.
Put it right: A boom increases GDP but does not automatically improve long-term structural development.
Believing that government borrowing increases during a boom.
Put it right: Tax revenues typically rise and welfare spending falls, often improving the fiscal balance.
Exam tips
- When asked about the characteristics of a boom, always consider the impact on all major macroeconomic objectives, including inflation and the balance of payments.
- Use the concept of a positive output gap to explain why inflationary pressures build up during a boom.
- Be ready to identify a boom phase on a provided economic cycle diagram, usually at the peak of the curve above the trend line.
Try the lesson
The start of the The economic cycle: b) Characteristics of a boom lesson, made from checked teaching notes for this specification point.
Have a go first
Which of the following is a typical characteristic of an economic boom?
Listen
A boom is a phase in the economic cycle characterised by rapid economic growth, where actual GDP rises above the long-term trend line, creating a positive output gap. During a boom, aggregate demand is high, leading to increased production and falling unemployment as businesses hire more workers. Consumer and business confidence are strong, encouraging higher spending and investment. For example, a boom often sees rising property prices and increased demand for luxury goods. However, this rapid expansion can lead to demand-pull inflation, as the economy operates near full capacity, causing prices to rise. Imports may also increase as consumers buy more foreign goods, potentially worsening the current account balance. A strong answer earns marks for these points. Identification of a boom as a period of rapid real GDP growth above the long-term trend. Recognition of low unemployment and high job vacancy rates during a boom. Understanding that high aggregate demand leads to strong consumer and business confidence. Awareness that a boom often triggers demand-pull inflation due to capacity constraints. Exam tip: When asked about the characteristics of a boom, always consider the impact on all major macroeconomic objectives, including inflation and the balance of payments.
See it
Key words
Say what each word means before you turn the card.
Boom
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Demand-pull inflation
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See every definition
- Boom
- A phase in the economic cycle characterised by rapid economic growth, where actual GDP rises above the long-term trend line, creating a positive output gap.
- Demand-pull inflation
- Caused by rapid expansion as the economy operates near full capacity, causing prices to rise.
Label the diagram
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3Box 3
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