Legal Definitions - overheated economy

An overheated economy is a situation where there is a high level of economic activity, but it can cause interest rates and inflation to rise. This can happen when there is too much demand for goods and services, and businesses start to raise their prices to keep up with the demand. This can lead to a cycle of rising prices and wages, which can cause inflation to spiral out of control.

• During the dot-com boom of the late 1990s, the US economy was considered to be overheated. The stock market was booming, and many people were investing in tech companies. However, this led to a bubble that eventually burst, causing a recession.
• In the 1970s, the OPEC oil embargo caused oil prices to skyrocket, which led to an overheated economy in many countries. Inflation rose rapidly, and many governments struggled to control it.

These examples illustrate how an overheated economy can lead to problems like inflation and recession. When there is too much demand for goods and services, it can cause prices to rise, which can make it harder for people to afford the things they need. This can lead to a cycle of rising prices and wages, which can cause inflation to spiral out of control. Eventually, this can lead to a recession, as businesses struggle to keep up with the demand and consumers start to cut back on their spending.