What is the difference between a recession and a depression?

A recession and a depression are both economic downturns, but they differ in terms of severity, duration, and impact on various economic indicators.

A recession is generally defined as a significant decline in economic activity that lasts for a relatively short period, typically two consecutive quarters or six months. During a recession, there is a contraction in various economic indicators such as GDP (Gross Domestic Product), employment, consumer spending, and business investment. However, recessions are considered a normal part of the business cycle and are often characterized by a milder decline in economic activity compared to a depression.

On the other hand, a depression is a severe and prolonged economic downturn that goes beyond the typical duration of a recession. It is characterized by a significant decline in economic activity, lasting for several years, and often accompanied by high unemployment rates, widespread business failures, and a sharp decrease in consumer spending. Depressions are considered rare and have a more severe impact on the overall economy compared to recessions.

The key differences between a recession and a depression can be summarized as follows:

1. Severity: Recessions are milder economic downturns, while depressions are more severe and have a more profound impact on the economy.

2. Duration: Recessions typically last for a relatively short period, usually a few quarters or months, while depressions can persist for several years.

3. Economic indicators: During a recession, there is a decline in economic indicators, but the magnitude is generally less severe compared to a depression. In a depression, economic indicators such as GDP, employment, and consumer spending experience a significant and sustained decline.

4. Impact: Recessions may lead to temporary job losses, reduced business investment, and decreased consumer confidence. In contrast, depressions can result in long-term unemployment, widespread business failures, and a prolonged decline in economic output.

Overall, the main difference between a recession and a depression lies in the severity, duration, and impact on various economic indicators. While recessions are considered a normal part of the business cycle, depressions are rare and have a more severe and prolonged impact on the overall economy.