Economic Booms  

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Economic Booms  
Definition of an Economic Boom: A boom is a period of rapid economic expansion resulting in higher GDP, lower unemployment and rising asset prices. Booms usually suggest the economy is overheating creating inflationary pressures. Many economic booms have been followed by a bust - economic recession or downturn. Hence the phrase Boom and Bust Economic Boom of the 1920s

The Economic boom of the 1920s saw rapid growth in GDP, production levels and living standards. The growth was fuelled by new technologies and production processes such as the assembly line. The economic growth also caused an unprecedented rise in stock market values - share prices increased much more than GDP. This boom came to a dramatic collapse with the Wall street Crash of 1929 on Black Thursday. This led to the Great Depression of the 1930s. Economic Boom of the 1980s.

The 1980s was another period of relatively fast growth. In the UK, the boom years were known as the Lawson boom. This also precipitated an economic downturn. Economic Boom in China and India
Not all economic booms have to come to an abrupt end. For example, the Chinese economy has experienced over 20 years of rapid economic expansion. The Indian economy has also experienced a period of rapid growth Black Thursday 1929  

Black Thursday - October 24th 1929 signalled the start of the Wall Street Crash and onset of the Great Depression which caused widespread economic turmoil and political upheavel. Black Thursday was the first large fall in share prices. But, was compounded by huge falls, a couple of days later on Monday 28th and Tuesday 29th. The decline continued throughout 1930, by July share prices had lost 89% of the value from the September, 1929 peak. This was the lowest the stock market had been since the ninenteenth Century. It took until 1954 for shares to regain their 1929 levels. The Causes of Black Thursday were many, but the main ones were: * Falling profitability of blue chip firms - a sign the boom years were over * Wildely overvalued share prices.

* Effect on confidence.
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* The Lawson Boom of the late 1980s
* When I was studying economics as an A level student, I was fascinated by how politicians could make really basic economic errors.

A good example of this was the Lawson boom of the late 1980s. Basically, in the Lawson boom the UK economy grew very rapidly, but, this growth proved to be unsustainable leading to inflation and later a recession in 1991.

The Lawson boom followed from the devastating recession of 1981. This recession particularly affected the manufacturing sector, and caused unemployment to rise to 3 million. By 1985, unemployment was still over 2.5 million people. However, from 1986 the government made various decisions which helped to inflate the economy causing an inflationary boom. * Causes of a Boom

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Exchange Rate Mechanism ERM.

This was big issue. Mrs Thatcher didn't want to join, however the Chancellor Nigel Lawson, wanted to follow an unofficial exchange rate of 3 DM to £1. This often proved to be a factor in preventing interest rates from rising. The Chancellor didn't want to increase interest rates, because it would break the 'unofficial exchange rate'

Tax Cuts

Nigel Lawson took the popular steps of reducing the basic rate of income tax. He also reduced the higher rate of income tax; the effect was a fiscal stimulus which helped to increase consumer confidence, Aggregate Demand and boost economic growth.

'The Economic Miracle.' which failed to Materialise

During the 1980s, the government felt that they had presided over an 'economic miracle'. They felt that the last recession had removed alot of inefficient firms. They also felt that supply side policies, such as privatisation, had been effective in increasing the productivity of the economy and had increased the long run trend rate of...
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