Economic bubble facts for kids

An economic bubble happens when a market goes through a very fast inflation of value. This increase is followed by a quick decrease in value, called a "crash" or a "bubble burst". Economic bubbles can be caused by many things, but many economists believe that economic bubbles are related to inflation. An economic bubble can cause an economic crisis due to a loss of investment both by companies and individuals, such as the Great Depression or the Economic crisis of 2007-2010.

An economic bubble occurs due to the human psychology of an expectation of an unlimited demand for any particular commodity. The market moves up quickly as the investors see an increase in prices due to increase in demand. Prices may eventually fall when supply increases beyond the demand, resulting in the bursting of the bubble. Predicting when this will happen is difficult, hence it may surprise investors.

Images for kids

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  Jan Brueghel the Younger's A Satire of Tulip Mania (ca. 1640)

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  A card from the South Sea Bubble

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  CAPE based on data from economist Robert Shiller's website, as of 8/4/2015. The 26.45 measure was 93rd percentile, meaning 93% of the time investors paid less for stocks overall relative to earnings.

See also

In Spanish: Burbuja económica para niños