Recession vs depression:
The slowing down or the downwards journey of an economic system can be quite depressing not only to the leaders of a certain nation but also to the people living in that country itself. This can lead to many financial trouble such as the increase of cost of living, unemployment, etc. Recession and depression are two economic terms utilised in reference to this rather miserable state of the economy of which the difference lies with the severity of this state.
What is recession?
Recession is a term that is used in economics which refers to the slowing down of the economic activity of a country. Many elements such as production, as measured by gross domestic product which is also known as the GDP, employment, investment spending, capacity utilization, household incomes, business profits, and inflation all fall, rising of the bankruptcies and the unemployment rate occur during such an unfortunate event. It often occurs after a drastic supply shock which suddenly changes the price of a commodity or service or after a burst in a economic bubble which results in a burst in a trade in products or assets with inflated values. When the Gross Domestic Product of an economy declines continuously for six months, it is considered that the economy is in recession.
What is depression?
A depression in economics can be defined as a sustained downturn in economic activity in one or more economic systems which had continued for a considerable amount of time. Depression is considered as a rather rare phenomena which is characterized by its length, abnormally large increases in unemployment and rather drastic falls in the availability of credit, etc which may cause a state of major economic catastrophe in a country.
What is the difference between depression and recession?
Most undoubtedly, recession and depression are interrelated with regards to the kind of devastation in economy it causes as well as the causes leading up to it and its many adverse side effects. However, the major difference which characterizes the two is the severity of the economic downfall. Thereby, a depression can be termed as an amplified, lengthened and a more severe form of recession which occurs when a recession has continued for a prolonged period of time.
Recession occurs when the Gross Domestic Product of an economy declines continuously for six months whereas a depression occurs when the GDP declines by more than 10% and this condition happens to continue to last for more than 3 years. There are certain factors which can be seen in a depression alone. Conditions such as price deflation, financial crises and bank failures are not typically seen under recession conditions whereas these factors are seen uniquely in a depression alone.
However, a recession and a depression will coincide constantly due to the fact that it is normally after a period of recession that a depression occurs and also because the difference between these two terms depend upon the severity of the fall of the economic activity. Thereby, while a depression is always a recession, a recession cannot always be termed as a depression. This may be due to the fact that recession is a more frequently occurring phenomena while the occurrence of a depression is not that commonly seen.
- A depression is a much severe and a more long lasting form of repression.
- A recession occurs when the Gross Domestic Product of an economy declines continuously for six months whereas a depression occurs when the GDP declines by more than 10% and this condition continues to last for more than 3 years.
- Recession is a more common occurrence than a depression.