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Video:What Is a Depression?

with Mike Moffatt

Before the Great Depression of the 1930's, any downturn in economic activity was referred to as a depression. Here's a contemporary explanation of what an economic depression is.See Transcript

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Transcript:What Is a Depression?

Simple Definition of Depression

Before the Great Depression of the 1930's, any downturn in economic activity was referred to as a depression. The term recession was developed in this period to differentiate periods like the 1930's from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a depression as a recession that lasts longer and has a larger decline in business activity.

Difference Between Depression and Recession

A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe. By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent.

New Way of Looking at Great Depression

If we use this method, then the Great Depression of the 1930's can be seen as two separate events: an incredibly severe depression lasting from August 1929 to March 1933, where real GDP declined by almost 33 percent; a period of recovery; then another less severe depression of 1937-38. The United States hasn't had anything even close to a depression in the post-war period. The worst recession in the last 60 years was from November 1973 to March 1975, where real GDP fell by 4.9 percent.

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