Resession and Depression

Topics: Business cycle, Unemployment, Depression Pages: 5 (1578 words) Published: May 13, 2013
Is the result of the current economic situation a recession or a depression?

In the economical aspect, depressions and recessions have a lot of similarities. Almost all the people heard about depressions and recessions in the economy since decade ago. However, not everyone can precisely distinguish the definition between depressions and recessions in the economy. The issue worth mentioning is that whether economic recessions or economic depression, all represent the same meaning. The reason why some people change the word is to avoid the populace notice or worry about the real worst economic situation. Nonetheless, these two economic situations have something delicately difference.

Economic recession is a serious decline, which can maintain almost a few months. In other words, some companies or industries will decrease the productivity; staff members and workers will be unemployed, otherwise, their real incomes will below the basic wages during the recession. Besides, people's consumption trend will decreased because of the unemployment rate raising. Finally, it also can decrease Gross Domestic Product by this vulnerable economic situation because of the employment rate raise.

"In many ways recessions are an interesting 'natural experiment' to monitor: they involve a major contraction in demand sustained over a substantial period of time, they affect some firms far more than others and they are exogenous to the actions of individual firms (although not necessarily to the actions of all firms taken together). That the contraction in demand is major and sustained means that those firms who are badly affected by a recession are likely to be forced to rethink the fundamental premises of their competitive strategy, and cannot simply initiate holding actions to wait out the storm."(Geroski P.A. et. al., 1997: 2) According to Geroski's thinking, recession as a business cycle will have severely damage to the firm, even might be result in bankruptcy.

The business cycle can be divided into four moments, which are the economic prosperity; economic recession; economic depression and economic recovery. According to these four stages, from prosperity to recession which means this period of time occurred slump trend; from recession to depression which means it slump trend extend; at the time between depression and recovery represent the economy rise up again; the change from recovery to prosperity is obviously pick up and get back to crest stage. That is to say, depressions and recessions just have the timing difference between before and after. Furthermore, these two economic terms’ changes or fluctuations are having closely relationship. Before the Great depression in the 30s, any kinds of global economic downturn activities are referred to economic depression. Likewise, in this period of time, anther jargon to describe downturns in the economics is appeared which is economic recession. These two jargons are to distinguish the business cycle between the Great depression and the small-scale economic downturns.

"An economic depression is represent a prolonged period of recession, or significant and prolonged downturn in the economy. Characteristics of an economic depression include declining business activities, falling prices, rising unemployment, increasing inventories, public fear and panic." (YourDictionary, 2012)

In the economic indicators that economic depression is consecutive slowdown 10 percent or more in Gross Domestic Product and the unemployment rate exceed in 10 percent negative growth in the continuous three years or longer than three years. In other words, during the economic depression, people are forced to spend their tangible assets on their daily expenses.

“Government consumption normally accounts for around a fifth of spending. It can pack a bigger punch than its share implies because when the state buys things, cash flows to firms and their workers, boosting consumption. But this part of the pie...
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