Understanding The Boom and Bust Cycle and How It Affects You

Written by
Written by

Deolu Akinyemi

The Boom and Bust cycle is a way to describe how the economy goes through periods of growth and contraction. It’s like a pattern that keeps repeating. It’s been around for a long time, and economists have different ideas about how it works.

At the center of the Boom and Bust cycle is something called the Central Bank. It’s like the bank for the whole country. The Central Bank has an important role in how money works in the economy. When you hear that a government is changing the Central Bank Governor, it means they want to change how money is managed.

One way the Central Bank can make the economy grow is by making it easier for people to borrow money. When borrowing is cheaper, more people start businesses and create jobs. This leads to a boom in the market, where everything seems to be going well.

But then, too much borrowing and investing can cause problems. It can create more stuff than people actually want to buy. This makes the value of things go down, and some people lose money. When that happens, businesses might have to cut jobs, and people have less money to spend. It becomes harder to borrow money because people are struggling to pay back what they borrowed. This is when the bust part of the cycle happens.

Sometimes things can get even worse. People lose confidence in the market, and they stop buying things they don’t really need. This can make the recession turn into a depression, which is a really bad time for the economy. But eventually, when prices get really low, investors start buying again, and the economy starts to recover.

So, based on what you’ve learned about the Boom and Bust cycle, what do you think the government might do to help, and what do you think the Central Bank might do to try and fix things?

This was made deliberately simple so you can explain it to children, care to share it with yours?

Kind Regards,

Adeolu Akinyemi.

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