The Difference Between a Recession and a Depression

There is not one agreed-upon definition of a recession. However, recessions can lead to depressions, and the effects are felt as unemployment lines get longer and businesses shut down.

Recession

A recession occurs when the Gross Domestic Product (GDP), measure of output, growth is negative for two or more consecutive quarters. Factors that are not included are unemployment rate and consumer spending.

Depression

A depression occurs when the GDP declines more than 10 percent or when a recession lasts longer than three years.

Determination

The National Bureau of Economic Research (NBER) is responsible for declaring a recession or depression within the U.S. Economy.

Causes

The causes of a recession include war, overproduction and underconsumption.

Effects

The effects of a recession, leading into a depression, include increased joblessness, a decline in consumer spending, an increase in foreclosures and bankruptcies.

References

• Diagnosing Depression
• Business Cycle Expansions & Contractions
• Why Is Our Economy in a Recession? 10 Causes of Economic Recession

Resources

• National Bureau of Economic Research (NBER)
• Congressional Budget Office (CBO)