by Catherine Rein
(last updated April 24, 2009)
My friend and I were having a discussion over what the correct term was for the economic downturn we are currently experiencing. The terms seem to be used interchangeably at times, but there is a difference. If you are wondering about the difference, read more to find out about the history of economic depressions.
The terms economic recession and economic depression are spread all over the news lately. But what do they mean exactly? There are two key differentiations between recession and depression, the length and severity of a decline in GDP. A recession is defined as a decline in Gross Domestic Product, the total market value of what consumers, investors and the government spends, plus the value of exports, minus the value of imports, for two or more consecutive quarters.
Knowing about the differences between a recession and a depression will give you a better understanding of the history of our country and the economic downturns we've faced before.
The term 'recession' is a relatively new term. It was coined after the 1930s, before this all economic downturns were called depressions. Economic downturns are milder today than before, they were historically much deeper and longer. They are not as severe today due to government spending. As the government increases spending, it helps stabilize the economy and support incomes. Also, historically when countries were on the gold standard, the money supply would slip during recessions, making the downturn more severe. Bank failures were also more common.
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