An economic expansion is an upturn in the level of
economic activity
Economics () is a behavioral science that studies the production, distribution, and consumption of goods and services.
Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyse ...
and of the
goods and services
Goods are items that are usually (but not always) tangible, such as pens or Apple, apples. Services are activities provided by other people, such as teachers or barbers. Taken together, it is the Production (economics), production, distributio ...
available. It is a finite period of growth, often measured by a rise in
real GDP
Real gross domestic product (real GDP) is a macroeconomic measure of the value of economic output adjusted for price changes (i.e. inflation or deflation). This adjustment transforms the money-value measure, nominal GDP, into an index for quantit ...
, that marks a reversal from a previous period, for example, while recovering from a
recession
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 (an adverse demand shock). This may be tr ...
. The explanation of fluctuations in aggregate economic activity between expansions and
contractions ("booms" and "busts" within the "
business cycle
Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, governmen ...
") is one of the primary concerns of
macroeconomics
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 (econ ...
.
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.
Whereas a recession is defined as two consecutive quarters of decline in
GDP,
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, or by internal factors such as a country's
fiscal policy
In economics and political science, fiscal policy is the use of government revenue collection ( taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variab ...
,
monetary policy
Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability (normally interpreted as a low and stable rat ...
,
regulatory policy,
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...
s, the availability of
credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
, or other impacts on producer incentives. Global events, such as pandemics, may also influence the amount of economic activity in various countries.
Economic expansion and
contraction refer to the overall output of all goods and services, while the terms "
inflation
In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
" and "
deflation
In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% and becomes negative. While inflation reduces the value of currency over time, deflation increases i ...
" refer to rising and falling prices of commodities, goods and services in relation to the value of money.
From a
microeconomic standpoint, expansion usually means enlarging the scale of a single
company
A company, abbreviated as co., is a Legal personality, legal entity representing an association of legal people, whether Natural person, natural, Juridical person, juridical or a mixture of both, with a specific objective. Company members ...
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.
References
External links
"US Business Cycle Expansions and Contractions", National Bureau of Economic Research
{{Authority control
Business cycle
Expansion
Market trends