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Explaining the difference between Economic Recession and Depression

Level:
AS, A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 3 Apr 2020

We live in a time of great economic uncertainty and some analysts fear that what is already an inevitable recession arising from the pandemic might turn into a full-blown economic depression for some countries or regions. In this short video, we explain the key differences between recession and depression.

Explaining the difference between Economic Recession and Depression

What is the difference between a recession and a depression?

The standard definition of a recession is when an economy experiences two consecutive quarters of negative GDP growth. I.e. there is a contraction in the real value of goods and services produced.

A broader interpretation of recession is a significant decline in activity spread across the economy, lasting more than a few months, normally visible in production, employment, real incomes, and other indicators.

A depression is a persistent and severe downturn in output and jobs where an economy operates well below its productive potential and where there can be powerful deflationary forces at work.

Harvard University economist Robert Barro defines it as a decline in per-person economic output or consumption of more than 10%.

Many economic historians say the line between recession and depression is crossed when unemployment rises above 10% of the labour force and stays there for several years

The Great Depression in the United States

  • Duration of depression: 43 months
  • Fall in real GDP from peak to trough: - 26.5%
  • Industrial production fell by 46%
  • Stock (share) prices fell by more than 80%
  • Increase in unemployment (% of labour force): 24.6%

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