Overheated Economy

Business, Legal & Accounting Glossary

Definition: Overheated Economy

Overheated Economy

Quick Summary of Overheated Economy

An overheated economy is one that has had a long period of strong economic growth and activity, which has resulted in high inflation caused by greater consumer affluence.

Full Definition of Overheated Economy

An Overheated economy occurs when economic activity peaks to unsustainable high levels. Economy at this stage may exert pressure on existing productive capacity. Producers become incapable of manufacturing enough goods and supply services to meet a rise in demand. Prices rise as a consequence and the country may suffer inflation.

An overheated economy usually comes after a lower than average economic growth. Supplier and producer of goods and services try to earn profit from excess demand and demand-pull inflation occurs as a result. Higher demand for products leads to higher prices, which tend to reduce total demand – both domestic and exports. Reduced consumption with tightening government monetary policies (like raising interest rates) may even lead to an economic recession.


Deflation is the general lowering of prices of goods and services. It is caused by a diminution in money supply or credit. Deflation is accompanied by greater unemployment due to lower economic demand. An economic depression is also a possibility. Declining prices generate a spillover effect of closing factories, lowering of profits, increased loan defaults, and reduced income and employment. Governments in this scenario raise the supply of money and catalyze price rises.


Recessions can be described as a substantial fall in the activity in a country’s economy. This economic state may persist for some time – from a few months to one and a half years. Recession is said to have occurred when a country suffers two consecutive quarters of negative economic growth as appraised by a country’s gross domestic product (GDP). Governments usually lower interest rates in a time of recession to boost the economy. Cheaper interest rates induce potential borrowers to borrow more and kick start the country’s economy.

Soft Landing

A soft landing is a term used to explain an economic growth rate that is high enough to avert recession and avoid high inflation. Governments usually achieve a soft landing by raising interest rates.

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Overheated Economy. PayrollHeaven.com. Payroll & Accounting Heaven Ltd.
April 18, 2024 https://payrollheaven.com/define/overheated-economy/.
Chicago Manual of Style (CMS):
Overheated Economy. PayrollHeaven.com. Payroll & Accounting Heaven Ltd.
https://payrollheaven.com/define/overheated-economy/ (accessed: April 18, 2024).
American Psychological Association (APA):
Overheated Economy. PayrollHeaven.com. Retrieved April 18, 2024
, from PayrollHeaven.com website: https://payrollheaven.com/define/overheated-economy/

Definition Sources

Definitions for Overheated Economy are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 5th January, 2022 | 0 Views.