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 ...Overheating(economics)FromWikipedia,thefreeencyclopediaJumptonavigationJumptosearchThisarticleneedsadditionalcitationsforverification.Pleasehelpimprovethisarticlebyaddingcitationstoreliablesources.Unsourcedmaterialmaybechallengedandremoved.Findsources: "Overheating" economics – news ·newspapers ·books ·scholar ·JSTOR(April2009)(Learnhowandwhentoremovethistemplatemessage)Overheatingofaneconomyoccurswhenitsproductivecapacityisunabletokeeppacewithgrowingaggregatedemand.Itisgenerallycharacterisedbyabelow-averagerateofeconomicgrowth,wheregrowthisoccurringatanunsustainablerate.Boomperiodsareoftencharacterisedbyoverheatingintheeconomy.Aneconomyissaidtobeoverheatedwheninflationincreasesduetoprolongedgoodgrowthrateandtheproducersproduceinexcesstherebycreatingexcessproductioncapacity.Themainreasonbehindoverheatingisinsufficientsupplyallocationbecauseofexcessspendingbythepeopleduetoincreaseinconsumerwealth.Contents1Causes2Effects3Historicalinstances4Seealso5References6ExternallinksCauses[edit]Highlevelsofaggregatedemandtendtobethecauseofoverheating.Ifshortrunaggregatedemandexceedslongrunaggregatesupply,thentheexcessdemandforgoodsmustbemetviatheover-employmentofresources.Thismaybeachievedbyemployingworkersforextrashiftsorusingmachinerybeyondtheirrecommendedworkinghours.Thistypeofproductionisconsideredunsustainablebecausetheover-employmentcannotbesupportedindefinitely.Overheatingcanbepreventedbymeansofconstantinfrastructureexpansiontoeliminatebottlenecks.Effects[edit]Overheatingisgenerallyprecededbylowerthanaverageeconomicgrowth.Demandpullinflationoccursassupplierstrytocapitalizeontheexcessdemandwhichcannotbemetviaexistingproductionconstraints.Thesehigherpricestendtoreduceaggregatedemandandexports(sincegoodsandservicesbecomemoreexpensiveabroad)leadingtoreducedconsumption.Centralbanksoftensimultaneouslytightenmonetarypolicyi