The Difference Between a Depression Versus a Recession
Recession and depression are common terms used in economics that describe periods of shrinking gross domestic product or GDP, which are often associated with falling stock market prices and rising unemployment.
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Recession Definition
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A recession is often defined as any period where GDP falls for a six month period; recessions often continue long after an initial economic slowdown.
Depression Definition
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There is no exact definition for a depression but a depression is essentially a very severe recession; an economic downturn where GDP falls by a total of 10% or more is likely to be called a depression.
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Business Cycles
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The modern US economy is thought to follow business cycles that can last for several years where periods of growth are followed by recessions; depressions are not considered a normal part of the business cycle.
Effects
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Recessions and depressions may have many wide reaching effects, such as low consumer confidence, widespread unemployment, inflation, and increasing numbers of personal and business bankruptcies.
Considerations
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Since recessions and depressions usually cause stock prices to fall, they can disrupt retirement plans; this is because many people prepare for retirement by investing in the stock market.
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