The economy revolves around the business world. Businesses are the driving force behind the economy, and they play a vital role in our everyday lives.
Without businesses, there would be no jobs, no products or services to consume, and no economic activity.
There are many economic terms that entrepreneurs must know about. One important distinction is between recession and depression.
In this blog post, we will see what is the difference between recession and depression.
What Is Recession?
A recession is a significant decline in economic activity lasting more than a few months. It is generally characterized by falling prices, rising unemployment, and decreased production and investment.
A recession typically occurs when there is a widespread drop in spending (consumption) and investment.
It can happen when households decide to save rather than spend, businesses cut back on investment due to lack of demand, or there is a decrease in exports.
Recessions are often preceded by periods of economic expansion, when growth is strong and unemployment is low.
What Is Depression?
Depression in economics is a state of the economy characterized by low levels of economic activity. This can manifest itself in various ways, such as high levels of unemployment, low levels of output and investment, and high levels of debt.
A depression is typically accompanied by a decrease in prices (deflation), an increase in savings (hoarding), and a decrease in investment.
All of these factors can lead to a decrease in aggregate demand, which can further exacerbate the downward spiral of the economy.
What Is The Difference Between Recession And Depression?
There are a few key differences between recessions and depressions. Here are some quick differences between depression vs recession.
Time Period
A recession is a period of economic decline, typically lasting for six months or more. A depression is a longer form of recession, typically lasting for two years or more. Recessions are generally shorter in duration than depressions, although there have been exceptions.
Severity
Recessions tend to be less severe than depressions, with GDP falling by around 2-3% during a recession compared to around 10% during a depression.
However, recessions can still have a significant impact on economies and people's lives.
For example, unemployment often rises during a recession, as businesses cut back on staff in order to save costs. This can lead to financial hardship for those affected, as well as increased stress and anxiety levels.
Causes
Finally, recessions tend to be caused by temporary shocks such as oil price spikes or financial crises, while depressions are typically caused by more deep-rooted problems such as structural issues in the economy or a prolonged period of low productivity growth.
Recession Vs Depression Vs Inflation
Are you thinking about the difference between recession vs inflation vs depression? Here’s all you need to know.
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months.
It is visible in industrial production, employment, real income and other indicators. A depression is a more severe downturn that can last for years and is characterized by widespread unemployment and poverty.
Whereas an inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the inflation rate is high, each unit of currency buys fewer goods and services.
