How do economists differentiate between a recession and a depression?
Answers
How do economists differentiate between a recession and a depression?
A recession is 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. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades. There are repeated periods during which real GDP falls, the most dramatic instance being the early 1930s. Such periods are called recessions if they are mild and depressions if they are more severe.
Basis for comparison Recession Depression
Meaning Recession is defined as a period when there is a downfall in the economic activity of the country, resulting in the fall in the country's GDP. The situation when there is sustained and drastic recession in the economy, it is known as depression.
What is it? Cause Effect
Criterion Negative GDP for two successive quarters 10% or more decrease in real GDP
Occurrence Frequent Rare
Strikes Different countries at different times. World economy as a whole.
Effect Severe More severe and may continue for a long time
Unemployment Rate Low High