- Overheating (economics)
Overheating of an economy occurs when its productive capacity is unable to keep pace with growing aggregate demand. It is generally characterised by an above-trend rate of economic growth, where growth is occurring at an unsustainable rate. Boom periods are often characterised by overheating in the economy.An economy is said to be overheated when inflation increases due to prolonged good growth rate and the producers produce in excess thereby creating excess production capacity.The main reason behind overheating is insufficient supply allocation because of excess spending by the people due to increase in consumer wealth.
High levels of aggregate demand tend to be the cause of overheating. If short run aggregate demand exceeds long run aggregate supply, then the excess demand for goods must be met via the over-employment of resources. This may be achieved by employing workers for extra shifts or using machinery beyond their recommended working hours. This type of production is considered unsustainable because the over-employment cannot be supported indefinitely.
Overheating is generally preceded by lower than average economic growth. Demand pull inflation occurs as suppliers try to capitalize on the excess demand which cannot be met via existing production constraints. These higher prices tend to reduce aggregate demand and exports (since goods and services become more expensive abroad) leading to reduced consumption. Central banks often simultaneously tighten monetary policy in response to increased inflationary pressures, reducing investment expenditure, which in tandem with decreased consumption, can lead to economic recession.
Historical instances of overheating
- Economists have suspected China of suffering from the effects of overheating in its rapid GDP growth in recent years .
- The Lawson Boom of the late 1980s/early 90s in the UK
- Switzerland during the periods of 1962-1967, 1971-1974, 1988-1991
- ^ Nov 8, 2003 (2003-11-08). "Asia Times Online - News from greater China; Hong Kong and Taiwan". Atimes.com. http://www.atimes.com/atimes/China/EK08Ad01.html. Retrieved 2011-11-04.
- ^ "La surchauffe - rts.ch - archives - télévision - divers". archives. http://archives.tsr.ch/dossier-economie/economie-surchauffe. Retrieved 2011-11-04.
- ^ [dead link]
Wikimedia Foundation. 2010.
Look at other dictionaries:
Overheating — may refer to: Hyperthermia, also called sunstroke, an elevated body temperature due to failed thermoregulation Thermal shock, the overheating of a device leading to reduced efficiency, damage or even destruction Overheating (economics), a rapid,… … Wikipedia
overheating — An economy that is growing very quickly, with the risk of high inflation. Bloomberg Financial Dictionary * * * overheat o‧ver‧heat [ˌəʊvəˈhiːt ǁ ˌoʊvər ] verb [intransitive, transitive] ECONOMICS if an economy overheats, demand rises too fast,… … Financial and business terms
overheating — /oʊvəˈhitɪŋ/ (say ohvuh heeting) noun 1. the condition of an engine, especially of a motor vehicle engine, in which it runs too hot. 2. Economics a state of an economy in which there is a strong demand for labour so that wages rise faster than… … Australian English dictionary
Demand shock — Economics … Wikipedia
Economic Affairs — ▪ 2006 Introduction In 2005 rising U.S. deficits, tight monetary policies, and higher oil prices triggered by hurricane damage in the Gulf of Mexico were moderating influences on the world economy and on U.S. stock markets, but some other… … Universalium
United States — a republic in the N Western Hemisphere comprising 48 conterminous states, the District of Columbia, and Alaska in North America, and Hawaii in the N Pacific. 267,954,767; conterminous United States, 3,022,387 sq. mi. (7,827,982 sq. km); with… … Universalium
United Kingdom — a kingdom in NW Europe, consisting of Great Britain and Northern Ireland: formerly comprising Great Britain and Ireland 1801 1922. 58,610,182; 94,242 sq. mi. (244,100 sq. km). Cap.: London. Abbr.: U.K. Official name, United Kingdom of Great… … Universalium
china — /chuy neuh/, n. 1. a translucent ceramic material, biscuit fired at a high temperature, its glaze fired at a low temperature. 2. any porcelain ware. 3. plates, cups, saucers, etc., collectively. 4. figurines made of porcelain or ceramic material … Universalium
China — /chuy neuh/, n. 1. People s Republic of, a country in E Asia. 1,221,591,778; 3,691,502 sq. mi. (9,560,990 sq. km). Cap.: Beijing. 2. Republic of. Also called Nationalist China. a republic consisting mainly of the island of Taiwan off the SE coast … Universalium
History of Venezuela — Infobox Country native name = República Bolivariana de Venezuela conventional long name = Bolivarian Republic of Venezuela common name = Venezuela official languages = Spanish demonym = Venezuelan capital = Caracas latd=10 |latm=30 |latNS=N… … Wikipedia