The most common confusion people have is between recession and depression. Although recession and depression both indicate a downturn in the economy, they differ from each other on multiple grounds. Depression is more serious and dangerous for the economy.
Here is a detailed discussion to help you discern the differences between these two important terms. Keep reading to find out how recession and depression differ from each other.
Recession VS Depression
- A short-term economic decline is known as a recession.
- The economy remains in recession for more than a few months.
- It is more frequent.
- It is defined as a severe and prolonged fall in economic activity.
- The economy remains in recession for several years.
- It is a rare situation.
Comparison Between Recession And Depression
|Time Span||The recession generally persists for some months.||Depression lasts for an extended period.|
|Frequency||A recession occurs frequently.||An economic depression is a rare situation.|
|Effects||A recession has less serious effects.||The effects of depression are extreme.|
|Recovery||Recovery of the economy is easier.||Recovery of the economy is arduous.|
|Example||The Great Recession of 2008.||The Great Depression of the 1930s.|
Definitions Of Recession And Depression
What Is A Recession?
When economic activity diminishes in a particular region and this decline persists for over a few months, it is referred to as recession. Indicators such as real GDP, employment, and real income signify recession.
Commonly, it is believed that a recession occurs when economic growth becomes negative and remains so for two consecutive quarters. But the National Bureau of Economic Research does not define recession along these lines anymore.
What Is Depression?
As mentioned earlier, depression is a more serious and profound version of recession. It occurs when the downturn in the economy or recession persists for an extended period, that is, for three or more years.
The United States suffered a severe economic downswing for almost a decade. Known as the Great Depression, it is the prime example of economic depression in the United States.
Significant Differences Between Recession And Depression
For instance, in the debates among economists regarding the causes of the Great Depression, there is a consensus that the stock market crash played a crucial role.
However, it was not the ultimate cause of the Great Depression. Other factors like debatable monetary policies and the failure of banks exacerbated the situation.
For businesses, the recession is a period of a considerable drop in sales. Recession can also cause an increase in the bankruptcy of firms.
It can be understood by looking back at the Great Depression, which witnessed escalating unemployment levels and numerous bank failures. The ordinary people were the worst hit.
The contrast between the Recession and the Depression
- Its severity is less.
- It has short-term consequences.
- The economy’s recovery is more manageable after a recession.
- It can have some effect on other economies.
- Its severity is more.
- The consequences are generally long-term.
- It is challenging for the economy to recover after a depression.
- Economic depression has negative consequences for other nations.
Great Recession VS Great Depression
- The Great Recession occurred from December 2007 to June 2009.
- It persisted for 18 months.
- There was a considerable fall in economic activities.
- The primary cause that triggered the recession was the crumbling of the subprime mortgage market.
- The Great Depression occurred from 1929 to the late 1930s.
- Its effects lasted for almost a decade.
- There was a serious economic downswing.
- The primary cause was the collapse of the stock market.
(FAQs) Frequently Asked Questions
1. What were the causes of the Great Depression?
According to economists, the Great Depression began with the stock market crash.
The condition was worsened by numerous other factors like the collapse of banks, unfavorable monetary policies, and failure in international trade.
2. Who were the hardest hit by the Great Depression?
Like any other crisis, the Great Depression impacted society’s marginalized and disadvantaged sections. These included the aged, children, and oppressed sections like African-Americans.
3. How long do recessions last?
Recessions generally persist for 6-12 months. However, they can be slightly shorter or longer.
For example, while the Great Recession lasted 18 months, the recession caused by covid-19 lasted only two months.
4. How does the recession affect an average person?
An average person is affected by high unemployment levels during a recession. As a result, there are increased chances of layoffs and benefit cuts.
5. Can a recession turn into depression?
When a recession lasts for a considerable period (three or more years) and causes a 10 percent contraction in GDP, it can give rise to depression. It depends on how severe the consequences are and how long they last.
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