Question Could you please give me easy-to-understand definitions of Depression (such as that which occurred in the 1930s) and Recession? Also, what is the distinction between these two words? Thank you very much. This is not a homework question. I am a 48 year old adult. Al Brown
Answer Wikipedia defines recession, as follows:
A recession is a contraction phase of the business cycle. The U.S. based National Bureau of Economic Research (NBER) defines a recession more broadly as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."[1] A sustained recession may become a depression.
As for depression, Wikipedia also provides:
In economics, a depression is a term commonly used for a sustained downturn in one or more national economies. It is more severe than a recession (which is seen as a normal downturn in the business cycle). Considered a rare but extreme form of recession, a depression is characterized by "unusual" increases in unemployment, restriction of credit, shrinking output and investment, price deflation or hyperinflation, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile/erratic relative currency value fluctuations, mostly devaluations.
There is no official definition for a depression, even though some have been proposed. In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions. A common rule of thumb for depression is a 10 percent decline in gross domestic product. The corresponding rule of thumb for recession is two quarters of negative GDP growth. Hence using these figures, the threshold for depression is vastly more severe than that for recession. A GDP decline of such magnitude has not happened in the United States since the 1930s.
Generally periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced given current resources and technology (potential output). One could say that while a recession refers to the economy "falling down," a depression is a matter of "not being able to get up."
The most noted depression is the Great Depression that affected much of the world in the 1930s. Also notable is the U.S. Long Depression that lasted from the 1870s until the 1890s.
