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What is the difference between a recession and depression?

When does a recession become a depression?

asked Jun 29 '10 at 18:28

Lestat611's gravatar image


From Wikipedia -

In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by economists as part of a normal business cycle. Considered a rare and extreme form of recession, a depression is characterized by its length, and by abnormally large increases in unemployment, falls in the availability of credit— quite often due to some kind of banking/financial crisis, shrinking output and investment, numerous bankruptcies— including sovereign debt defaults, significantly reduced amounts of trade and commerce— especially international, as well as highly volatile relative currency value fluctuations— most often due to devaluations. Price deflation, financial crises and bank failures are also common elements of a depression.

In economics, a recession is a business cycle contraction, a general slowdown in economic activity over a period of time.[1][2] During recessions, many macroeconomic indicators vary in a similar way. Production as measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation all fall during recessions; while bankruptcies and the unemployment rate rise. Recessions are generally believed to be caused by a widespread drop in spending. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.

In short, this is what trueb already said. A recession is a short-term change, and a depression is a major long-term one.

answered Jun 30 '10 at 20:51

chadt4's gravatar image


time, a recession is when the economy is not doing very well for a short period of time. a depression is a longer term. no one really seems to agree on when it starts but there is a time difference

answered Jun 29 '10 at 19:36

trueb's gravatar image


A recession is when your neighbor is out of a job. A depression is when you are out of a job too.

answered Jun 30 '10 at 20:47

Chuckyw's gravatar image


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Asked: Jun 29 '10 at 18:28

Seen: 4,461 times

Last updated: Jun 30 '10 at 20:51