Economic depression - Definition and Overview

In economics, a depression is a term commonly used for a sustained downturn in the economy. It is more severe than a recession (which is seen as a normal downturn in the business cycle). Like a recession, the start of a depression is characterized by increases in unemployment, restriction of credit, reduced output and investment, price deflation, numerous bankruptcies, and reduced amounts of trade and commerce. Unlike a recession, there is no official definition for a depression, even though some have been proposed. Generally it is marked by a substantial and sustained disequilibrium between the quantity of goods that could be produced (potential output) and the ability to purchase them. One could say that while a recession refers to the economy "falling down," a depression is a matter of "not being able to get up."

The most noted depression is the Great Depression that affected much of the world in the 1930s. Also notable is the Long Depression that lasted from the 1870s until the 1890s.

Today many economists believe that the combination of the social safety net and a much better understanding of macroeconomics makes another depression highly unlikely.

See also:

• Recession
• List of recessions and depressions
• business cycle
• deflation