Economics Business Cycles Questions
The main difference between a recession and a depression lies in the severity and duration of the economic downturn.
A recession is typically defined as a period of temporary economic decline characterized by a decrease in economic activity, such as a decline in GDP, industrial production, employment, and trade. It is generally marked by a contraction in the economy that lasts for a few months to a year. During a recession, there is a decline in consumer spending, business investment, and overall economic output. However, recessions are considered a normal part of the business cycle and are usually followed by a period of recovery and growth.
On the other hand, a depression is a severe and prolonged economic downturn characterized by a significant decline in economic activity across multiple sectors of the economy. Depressions are more severe and longer-lasting than recessions, often lasting for several years. During a depression, there is a substantial decrease in GDP, high unemployment rates, widespread business failures, and a general decline in consumer confidence and spending. Depressions are considered rare and have a more profound impact on the overall economy and society.
In summary, while both recessions and depressions represent periods of economic decline, the key difference lies in the severity, duration, and impact on various economic indicators and sectors.