What is the difference between a depression and a recession?
#91738. Asked by bg4mug. (Jan 30 08 5:41 AM)
There’s an old joke among economists that states:|
A recession is when your neighbor loses his job.
A depression is when you lose your job.
The difference between the two terms is not very well understood.
The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters. This definition is unpopular with most economists for two main reasons.
First, this definition does not take into consideration changes in other variables. For example this definition ignores any changes in the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected.
The simple definition of a depression as a recession that lasts longer and has a larger decline in business activity.
A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.
In support and in keeping with BRY2K's post:|
The Difference Between a Recession and a Depression
When Jim's neighbor got a pink slip,
Jim sighed, "It's a recession."
But when the boss fired Jim, he cried,
"Egads, it's a DEPRESSION!"
The difference is usually understood in terms of quantity. Recession exceeding a certain rate (a GDP fall of more than 10%) is called depression. A classic example of depression was the great depression of 1929-1933 in the United States when GDP plummeted by nearly 33%. The United States experienced another period of depression in 1937-1938, with GDP falling by more than 18%. There was no depression in the United States in the post-war period: the highest GDP drop occurred in 1973-1975, reaching roughly 5%, which was within the recession band.
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