The boom and bust cycle is the alternating phases of economic growth and decline. It's how most people describe the business cycle or economic cycle.

In the boom cycle, economic growth is positive. If GDP growth remains in the healthy 2-3% range, it can stay in this phase for year.  It's accompanied by a bull market, rising housing prices, wage growth and low unemployment.

The boom phase doesn't end unless the economy is allowed to overheat.

That's when there's too much liquidity in the money supply, leading to inflation.  As prices rise, irrational exuberance takes hold of investors. The GDP growth rate grows above 4% for two or more quarters in a row. You know you're at the end of a boom phase when the media says the expansion will never end, and even the grocery clerk is making money from the latest asset bubble.

The bust phase is like life in the Middle Ages--brutish, nasty, and mercifully short. It usually only lasts 18 months or less. GDP turns negative, the unemployment rate is 7% or higher, and the value of investments fall. If it last more than three months, it's usually a recession. It can be triggered by a stock market crash, followed by a bear market. For more, see How a Stock Market Crash Can Cause a Recession.

Causes

The cycle of boom and bust is caused by three forces: the law of supply and demand, the availability of capital, and future expectations.

The boom phase is driven by high demand. Consumers are confident about the future, so they buy more now, knowing they'll get better jobs, higher home values and rising stock prices later on.

This demand means companies have boost supply, which they do by hiring new workers. Capital is easily available, so consumers and businesses alike can borrow at low rates.This stimulates more demand,creating a virtuous circle of prosperity.

However, if demand outstrips supply, the economy can overheat. In addition, if there's too much money chasing too few goods, it causes inflation.  When this happens, investors and businesses try to outperform the market. They ignore risk to achieve gain. 

The bust cycle is caused by plummeting confidence, which can be triggered by a stock market correction or even a crash. Investors sell stocks, and buy safe-haven investments that traditionally don't lose value, such as bonds, gold and the U.S. dollar. As companies lay off workers, consumers lose their jobs, and stop buying anything but necessities. This causes a downward spiral. For more, see Causes of Recession. 

The bust cycle eventually stops on its on when prices are so low that those investors that still have cash start buying again. However, this can take a long time, and even lead to a depression. Confidence can be restored more quickly by central bank monetary policy and government fiscal policy  For more, see What Causes the Boom and Bust Cycle?

History

The history of boom and bust cycles is compiled by the National Bureau of Economic Research, or NBER. It uses economic indicators to measure the boom and bust cycles. These include GDP statistics, employment, real personal income, industrial production and retail sales. 

Since 1854, there have been 33 cycles, with the booms lasting an average of 38.7 months, and the busts lasting 17.5 months on average. For more, see NBER Cycles.

Here's the boom and bust cycles since 1980:

Cycle	Duration	Comments
Bust	January 1980 - July 1980	1980 Recession caused by high interest rates to end stagflation.
Boom	July 1980 - July 1981	Fed lowered rates. For more, see Historical Fed Funds Rates.
Bust	July 1981 - November 1982	Resumption of 1980 recession.
Boom	November 1982 - July 1990	President Reagan lowered tax rate and boosted the defense budget.
Bust	July 1990 - March 1991	Caused by 1989 Savings and Loan Crisis.
Boom	March 1991 - March 2001	Ended with bubble in internet investments
Bust	March 2001 - November 2001	2001 Recession caused by stock market crash, high interest rates
Boom	November 2001 - December 2007	Derivatives caused housing bubble in 2006
Bust	December 2007 - June 2009	Subprime Mortgage Crisis, 2008 Financial Crisis, the Great Recession
Boom	June 2009 - Now	Economic Stimulus Act and Quantitative Easing

For more, see History of Recessions . Article updated February 21, 2015.