Characteristics of a Recession vs. Depression

The attributes of a recession include declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. Recessions are the result of falling demand and may be associated with falling prices (deflation), or sharply rising prices (inflation) or a combination of rising prices and stagnant economic growth (stagflation).

A common rule of thumb for recession is two quarters of negative GDP growth. The corresponding rule of thumb for a depression is a 10 percent decline in gross domestic product (GDP). Considered a rare but extreme form of recession, a depression is characterized by "unusual" increases in unemployment, restriction of credit, shrinking output and investment, price deflation or hyperinflation, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile/erratic relative currency value fluctuations, mostly devaluations. Generally periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced given current resources and technology (potential output).
A devastating breakdown of an economy (essentially, a severe depression, or hyperinflation, depending on the circumstances) is called economic collapse.


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