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Depression (economics)
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In economics, a depression is a sustained, long downturn in one or more economies. It is more severe than a recession, which is seen as a normal downturn in the business cycle.
Considered a rare and extreme form of recession, a depression is characterized by abnormal increases in unemployment, restriction of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations.
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Encyclopedia
In economics, a depression is a sustained, long downturn in one or more economies. It is more severe than a recession, which is seen as a normal downturn in the business cycle.
Considered a rare and extreme form of recession, a depression is characterized by abnormal increases in unemployment, restriction of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Price deflation or hyperinflation are also common elements of a depression.
Definition
There is no widely-agreed-upon definition for a depression, though some have been proposed. In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions.
A proposed definition for depression is a sustained recessionary period in which the population is forced to dispose of tangible assets to fund every day living, as was seen in the US and in Germany in the 1930s.
Often, in Canada and the United States, the word "depression" is used interchangeably with "recession", often to simply indicate a deeper or more serious recession. Some economists require a drop in GDP of 10 percent or more before a recession would be referred to as a depression.
Characteristics
Generally, periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology (potential output).
Though there is no widely accepted definition for an economic depression, according to an article in The Economist, there are two rules of thumb found widely on the internet. One is a decline in real GDP exceeding 10%, and the other is a recession lasting 3 or more years.
Notable depressions
Great Depression
The most well-known depression is the Great Depression that affected most of the economies in the world throughout the 1930s. The depression began during the Wall Street Crash of 1929, and the crisis quickly spread to most national economies.
A long-term effect of the Great Depression has been the departure of every major currency from the Gold Standard.
Long Depression
The Long Depression, known at the time as the "Great Depression", lasted from about 1873 to 1896. It affected much of the world and was contemporaneous with the Second Industrial Revolution.
Panic of 1837
The Panic of 1837 was an American financial crisis, built on a speculative real estate market . The bubble burst on May 10, 1837 in New York City, when every bank stopped payment in gold and silver coinage. The Panic was followed by a five-year depression, with the failure of banks and record high unemployment levels.
See also
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