Economic expansion

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An economic expansion is an upturn in the level of economic activity and of the goods and services available. It is a finite period of growth, often measured by a rise in real GDP, that marks a reversal from a previous period, for example, while recovering from a recession. [1] [2] The explanation of fluctuations in aggregate economic activity between expansions and contractions ("booms" and "busts" within the "business cycle") is one of the primary concerns of macroeconomics. [3]

Contents

Definition

According to the four stages of a business cycle (expansion, peak, contraction, trough), an expansion is an upward trend when a country's economy experiences relatively rapid growth as measured by a rise in industrial production, employment, consumer spending, and utilization of resources. [4] [5] Whereas a recession is defined as two consecutive quarters of decline in GDP, [6] economic recovery and prosperity are two successive phases of expansion.

Economic expansion can be affected by external factors such as technological changes or weather conditions, [7] or by internal factors such as a country's fiscal policy, [8] monetary policy, regulatory policy, [9] interest rates, the availability of credit, or other impacts on producer incentives. Global events, such as pandemics, may also influence the amount of economic activity in various countries. [10] [11]

Economic expansion and contraction refer to the overall output of all goods and services, while the terms "inflation" and "deflation" refer to rising and falling prices of commodities, goods and services in relation to the value of money. [4]

From a microeconomic standpoint, expansion usually means enlarging the scale of a single company or firm. This can be achieved through internal actions—opening branches, finding new customers, inventing products, developing lines of business—and through integration, for example, taking over or merging with other companies. [12]

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Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic health of a country or region. Several national and international economic organizations maintain definitions of GDP, such as the OECD and the International Monetary Fund.

<span class="mw-page-title-main">Macroeconomics</span> Study of an economy as a whole

Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output/GDP and national income, unemployment, price indices and inflation, consumption, saving, investment, energy, international trade, and international finance.

In economics, a recession is a business cycle contraction that occurs when there is a period of broad decline in economic activity. Recessions generally occur when there is a widespread drop in spending. This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale anthropogenic or natural disaster. There is no official definition of a recession, according to the IMF.

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<span class="mw-page-title-main">Fiscal policy</span> Use of government revenue collection and expenditure to influence a countrys economy

In economics and political science, fiscal policy is the use of government revenue collection and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variables developed in reaction to the Great Depression of the 1930s, when the previous laissez-faire approach to economic management became unworkable. Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Keynesian economics theorised that government changes in the levels of taxation and government spending influence aggregate demand and the level of economic activity. Fiscal and monetary policy are the key strategies used by a country's government and central bank to advance its economic objectives. The combination of these policies enables these authorities to target inflation and to increase employment. In modern economies, inflation is conventionally considered "healthy" in the range of 2%–3%. Additionally, it is designed to try to keep GDP growth at 2%–3% and the unemployment rate near the natural unemployment rate of 4%–5%. This implies that fiscal policy is used to stabilise the economy over the course of the business cycle.

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<span class="mw-page-title-main">Global recession</span> Recession that affects many countries around the world

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<span class="mw-page-title-main">Depression of 1920–1921</span> Sharp deflationary recession

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Real business-cycle theory is a class of new classical macroeconomics models in which business-cycle fluctuations are accounted for by real, in contrast to nominal, shocks. RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment. That is, the level of national output necessarily maximizes expected utility.

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References

  1. ↑ "Economic Growth: What It Is and How It Is Measured". Investopedia. 5 June 2024.
  2. ↑ Compare:Lederer, Emil (May 1939). "Is the Economic Frontier Closed?". Social Research . 6 (2). New York: 154–155. JSTOR   40981818. I would define economic expansion as the increase of aggregate production from one production period to another. If the concept is defined in this general way it includes expansion that results from an increase in population, from better utilization [...].
  3. ↑ Ryan, Cillian; Mullineux, Andrew W. (1997). "The ups and downs of modern business cycle theory". In Snowdon, Brian; Vane, Howard R.; Backhouse, Roger E. (eds.). Reflections on the Development of Modern Macroeconomics. Cheltenham: Edward Elgar Publishing. p. 136. ISBN   978-1781008492 . Retrieved 22 May 2023. [...] the primary focus of macroeconomics swung back from determining and manipulating the equilibrium level of output to the 'business cycle'.
  4. 1 2 "Economic Cycle: Definition and 4 Stages of the Business Cycle". Investopedia. 19 December 2023.
  5. ↑ Bondarenko, Peter. "expansion". Britannica Money.
  6. ↑ Claessens, Stijn; Kose, M. Ayhan (11 February 2019). "Recession: When Bad Times Prevail". International Monetary Fund.
  7. ↑ Colacito, Riccardo; Phan, Toan; Sablik, Tim (August 2018). "The Impact of Higher Temperatures on Economic Growth". Federal Reserve Bank of Richmond.
  8. ↑ Horton, Mark; El-Ganainy, Asmaa (28 June 2019). "Fiscal Policy: Taking and Giving Away". International Monetary Fund.
  9. ↑ "Regulatory reform". Organisation for Economic Co-operation and Development (OECD). Retrieved 25 January 2025.
  10. ↑ "Overview: World Economic Situation and Prospects 2024". United Nations. 5 January 2024.
  11. ↑ "Chapter 1. The economic impacts of the COVID-19 crisis". World Development Report (WDR). World Bank Group.
  12. ↑ Rodrigo, G. Chris (15 June 2017). "Micro and Macro: The Economic Divide". International Monetary Fund.
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