Depression Vs. Recession What Is Essay

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A definition that is frequently utilized is that of a prolonged recession that has a larger impact on the business economy (Lapidos, 2008). Further, a depression is a period of time during which the GDP declines by more than 10 percentage points (Lapidos, 2008). This practical approach allows one to quantify the differences between the two phenomenons.

It is important to determine whether an economic downturn is a recession or a depression due to the fact that each will require a different response from the federal government in order to improve the outcome. If it is a recession, since it is caused by monetary conditions, it can be aided through the lowering of interest rates. However, the large changes to fiscal policies such as tax cuts or government spending plans will not be very effective (Adams, 2009). A depression, on the other hand, is the direct result of an asset bubble being burst and therefore changes to economic policies, such as stimulus packages may significantly impact this situation. Depressions can range in severity from mild to severe and the best course of action is an economic policy to address the shortfalls (Adams, 2009).

The last two depressions in the U.S. were both in the 1930s.

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The first was from August of 1929 to March 1933, where GDP declined by roughly 33% (Ramirez, 2008). The economy did make a recovery after this time, yet severe economic decline occurred from 1937 to 1938, this depression was not quite as severe as the previous one (Ramirez, 2008). All other economic downturns since that time have been qualified as recessions and the safeguards that are in place are designed to ensure that things do not decline to the level of depression in the future.

Most economic declines are best represented in retrospect when one can evaluate the event in its entirety. Waiting for the data tends to take some time. As a result, most recessions have not been declared by NBER until at least five months after they've ended (Newman, 2008). The one marker that seems to be a constant in most recessions is unemployment. The need for more clear definition of what constitutes a depression has been given substantial attention. However, it is generally accepted that things will probably not decline that drastically again and, since we know that it is a more severe form of a recession, depression should be relatively straightforward to.....

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