Economic depression is an extended, prolonged slump in economic activity in a number of economies. It's a worse recession than a typical recession, which is essentially a prolonged period of time in economic down-turn. It differs from a mild recession because it goes on for several years. Usually, this is caused by a decline in national income. It may go on for six months or more and may affect the business sector and even affect consumer spending habits.
While most recessions are temporary and can be recovered quickly, no such thing exists for economic depressions. The length of time between recessions is shorter than that for depressions. It can take two to three years for recoveries from recession. Moreover, most depressions have occurred during times when unemployment is high – usually at the depths of the recession.
Great Depression – The Great Depression marked the onset of the Great Depression in the United States. It was the first serious economic depression since the Great Depression of the 1930s. It is arguably one of the largest financial depressions in history. The length of this depression was two years.
The severity of this economic depression has been widely recognized. At its worst, it led to total loss of employment and market and property values that may never be recovered. The Great Depression also marked the onset of the first large scale international trade depression. In the United States, employment and business failures reached levels not seen in previous recessions. Many economists believe that this event paved the way for World War II.
Great depressions tend to leave behind a legacy of economic problems. Many areas experienced substantial increases in unemployment rates, while the few experienced minimal improvements. As a result, many regions endured serious deterioration. As a result, Great Depression has had a lasting effect on the way society relates to economic activity. Economic depression has resulted in social turmoil in many cases.
There are many economic depression indicators. Although there is no exact record of the number of recessions and depressions, the length and depth of recessions are well-recognized. In addition, some governments have been slow to acknowledge the effects of past recessions on future economic activity.
Most economic depression indicators tend to focus on recessions that occurred within two years or so. A notable exception is the “ources of danger” report prepared by the Office of the Commissioner of the Bank of England. The sources of danger are said to include “a sudden change in political or economic policy or in the balance of trade”, “a major outbreak of contagious disease”, “risks of default on debt payments or in bankruptcy of financial institutions”, “the condition of the banks” and “a breakdown of trustful banks”. The Financial Crisis Commission noted that it was “inevitable” for at least two years before recessions reached these levels.
The main article from this series examines Great Depression and the impact it had on world war II. After all, Great Depression is often referred to as the birth of modern inflation. The author shows that, unlike the world war II, recessions had no significant effect on inflation, capital formation or the level of trade. They also did not lead to increased unemployment, rising prices or diminished employment.
However, as the author goes on to note, Great Depression had three major side effects that changed the face of the world economy, namely – increased unemployment, deflation and the rise in real estate costs. The author also argues that the main cause of the Great Depression was the inability of banks to meet their liabilities. This meant they were compelled to go into business for the provision of credit, which ultimately resulted in increased unemployment. With the government's policies of intervention in the financial system, including the re-consolidation of the banking system, money lending and credit creation, more employment was created and price levels were brought down. The main article finishes by looking at world war ii and its effects on the world economy.
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