What is a Depression?

A depression is an extreme form of a recession in its severity as well as its length. While some people claim that we are currently in a depression, the classic example of an economic depression is the Great Depression which occurred throughout the 1930's beginning with the stock market crash in 1929.

Like a recession, a depression does not have a common, indisputable definition, however a common reference is a decline in real GDP (taking inflation into account) greater than 10% lasing at least 3 years. In the 4 most severe years of the Great Depressions from 1929 to 1933, real GDP dropped 33%.

Unlike a recession, a depression is not considered a normal element of the business cycle and thus an anomaly of great proportions. Along with a decrease in real GDP, characteristics of a depression include shrinking output and investment, a decrease in bank lending and extreme unemployment.

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