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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 as part of a normal business cycle.

Considered a rare and extreme form of recession, a depression is characterized by its length, and by abnormal increases in unemployment, falls in the availability of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Price deflation, financial crisis and bank failures are also common elements of a depression.

Definition

There is no widely agreed upon definition for a depression, though some have been proposed. In the United Statesmarker the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions. Generally, periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology (potential output). Another proposed definition of depression includes two general rules: 1) a decline in real GDP exceeding 10%, or 2) a recession lasting 2 or more years..

Notable depressions

Great Depression

The best-known depression was the Great Depression, which affected most national economies in the world throughout the 1930s. This depression is generally considered to have begun with the Wall Street Crash of 1929, and the crisis quickly spread to other national economies. Between 1929 and 1933, the gross national product of the United Statesmarker decreased by 33% while the rate of unemployment increased to 25%. The probable causes of the Great Depression include the loose money policies of the Federal Reserve and the misallocation of capital based on easy and inexpensive credit.

A long-term effect of the Great Depression has been the departure of every major currency from the gold standard. See: Bretton Woods Accordmarker

Long Depression

The Long Depression, known at the time as the "Great Depression", lasted from about 1873 to 1896. It affected much of the world and was contemporaneous with the Second Industrial Revolution.

Panic of 1837

The Panic of 1837 was an American financial crisis, built on a speculative real estate market . The bubble burst on May 10, 1837 in New York Citymarker, when every bank stopped payment in gold and silver coinage. The Panic was followed by a five-year depression, with the failure of banks and record high unemployment levels .

See also



References

  1. http://www.nber.org/cycles/recessions_faq.html
  2. http://www.infoplease.com/ce6/history/A0821657.html
  3. http://www.economist.com/finance/displaystory.cfm?story_id=12852043
  4. http://businesscycles.info/recession-definition/
  5. http://www.english.uiuc.edu/maps/depression/about.htm
  6. Outliving a long depression, money.cnn.com
  7. http://www.politonomist.com/history-of-economic-recessions-00273/3/



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