What Is the Definition of an Economic Depression?
The economic recession that began in 2008 left many people asking if the U.S. economy is headed toward the first depression since the 1930s. It also reignited the question of the difference between a recession and a depression.
-
Significance
-
Characteristics of an economic depression include severe declines in economic output, as measured by the gross domestic product (GDP) and a sharp increase in unemployment. During the Great Depression, U.S. unemployment peaked at 25 percent.
Identification
-
The generally accepted definition of a recession is two consecutive quarters of falling gross domestic product (GDP). The general measure for a depression is a decline in GDP of more than 10 percent or a recession that lasts more than three years.
History
-
The Great Depression of the 1930s meets both criteria. From 1929 to 1933, GDP declined by more than 30 percent. A shorter, less severe depression occurred in 1937 to 1938, when GDP fell by more than 13 percent.
Geography
-
The Asian financial crisis of the 1990s sparked depressions in several southern Asian nations. Finland's GDP fell 11 percent in the early 1990s, while Russia's GDP plummeted by more than 40 percent during the 1990s.
Fun Fact
-
Before the 1930s, all economic downturns were referred to as depressions. The term "recession" was coined to distinguish severe downturns such as the Great Depression from milder declines in economic output.
-
