Economic expansion is a period during which GDP grows. During a period of economic expansion, there is an increase in the level of economic activity. There is an increase in the production of goods and provision of services. There is also an upturn in the utilization of resources during this period.
GDP stands for Gross Domestic Product. It is the total production of goods and services in the economy over a set period.
Economic expansion is an upward trend in the business cycle. The country produces more and there is an increase in employment, i.e., there are more jobs. As incomes increase, so does consumer spending. Businesses also spend more.
The business cycle refers to the alternating periods of economic boom and recession. Fluctuations in trade and production in a market economy are mainly responsible for the changes in GDP growth rates.
Encyclopaedia Britannica has the following definition of the term:
“Expansion, in economics, an upward trend in the business cycle, characterized by an increase in production and employment, which in turn causes an increase in the incomes and spending of households and businesses.”
Economic expansion – incomes
In most cases, when the economy expands, household income grows. Subsequently, consumer spending increases.
However, when the advanced economies started to recover from the Great Recession, many salaries did not grow. They did not increase in real terms, i.e., after taking into account inflation.
The Great Recession occurred during from the late 2000s to the early 2010s. In some countries, it only lasted a couple of years, while in others it persisted for much longer.
When the American and British economies recovered, salaries failed to keep up with inflation for many years. In other words, it was an economic expansion without real increases in incomes.
Many consumers spent more because they borrowed more, and not because they were earning more.
Economic expansion vs. contraction
Economic expansion contrasts with economic contraction. During a contraction, GDP shrinks. We refer to an economic contraction as a recession.
When the expansion ends, there is a peak, and the contraction begins. When the contraction ends, there is a trough, and the recovery or expansion begins.
In most cases, an expansion lasts between three and four years. However, some come and go very quickly, i.e., they might last only twelve months. Others, on the other hand, may last for more than a decade.
Most economies during the 1960s experienced growth that lasted nearly a decade.