Differences Between a Recession and a Depression

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.

  • Decline in Real GDP over 10%. A decline in Real GDP of over 10% is required for a depression. GDP stands for Gross Domestic Product, or the output of the country's manufacturing and services. As an example, the Great Depression had a decline in GDP of approximately 30% between 1929 and 1933. Output also fell by 13% during 1937 and 1938.
  • Decline in Real GDP for Over Three Years. For a downturn to be labeled a depression, GDP needs to decline for over three years. The Great Depression lasted 43 months, which was not the longest in America's history. The longest at 65 months was between 1873 and 1879.
  • Other Indicators. The cause of the downturn also matters. A recession often follows a period of tight monetary policy, but a depression is the result of a bursting asset and credit bubble, a contraction in credit and a decline in the general price level.

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.

Author Bio

Catherine Rein


Do I Lease or Do I Buy?

Leasing an automobile or purchasing one is a decision that needs to be based on lifestyle choices. If you like to drive a ...

Discover More

Getting Rid of Red Eyes

Red and inflamed eyes can have many causes. You can reduce the inflammation and prevent any infection from spreading to ...

Discover More

Improving Self Esteem

If you are troubled by low self-esteem and it is harming the relationships you have with family and friends or holding ...

Discover More
More Money Tips

Recognizing Money Scams

It is sad facts of life that our society has people in it how are constantly trying to scam others out of their money. ...

Discover More

Avoiding Money Scams

It is a sad fact but there are many, many different people out there who's only goal in life is to separate you from your ...

Discover More

Resources for Fighting Scams

It can be a humiliating, and even scary, experience to find yourself the victim of a scam. Unfortunately, since everyone ...

Discover More

If you would like to add an image to your comment (not an avatar, but an image to help in making the point of your comment), include the characters [{fig}] in your comment text. You’ll be prompted to upload your image when you submit the comment. Maximum image size is 6Mpixels. Images larger than 600px wide or 1000px tall will be reduced. Up to three images may be included in a comment. All images are subject to review. Commenting privileges may be curtailed if inappropriate images are posted.

What is one less than 2?

There are currently no comments for this tip. (Be the first to leave your comment—just use the simple form above!)