Economics Production Possibility Frontier Questions Medium
In relation to the Production Possibility Frontier (PPF), the difference between a recession and a depression lies in the severity and duration of the economic downturn.
A recession refers to a temporary decline in economic activity, typically characterized by a decrease in GDP growth rate, a rise in unemployment, and a contraction in business activity. During a recession, the economy operates below its full potential, and there is a decrease in the production of goods and services. This would be represented on the PPF as a movement inward from the frontier, indicating a decrease in the economy's productive capacity.
On the other hand, a depression is a more severe and prolonged economic downturn. It is characterized by a significant decline in economic activity, a substantial increase in unemployment, and a prolonged contraction in business activity. During a depression, the economy operates well below its full potential for an extended period. This would be represented on the PPF as a significant shift inward, indicating a substantial decrease in the economy's productive capacity.
In summary, while both a recession and a depression represent periods of economic decline, the difference lies in the severity, duration, and magnitude of the impact on the economy's productive capacity as depicted on the PPF.