What Is an Economy Bubble?

In simple terms, a bubble is an economic cycle characterized by the rapid escalation of market value. This fast increase in the price of assets is nothing but inflation. In a bubble, inflation is followed by a fast decline in the market value. This contraction in the price of assets is called a crash or a bubble burst.

During a bubble, the surge in asset prices is driven by over-optimistic market behavior. The assets trade at a price that is much greater than those assets’ intrinsic value. The intrinsic value of an asset is the fundamental value of that asset and tells us about its true worth.