Recession and Depression – The difference – AHEB Investment Group
Recession and Depression – The difference
Recession is a period during which economic activity is down. Depression also means the same thing. Then why use two terms if they both mean the same thing. Well depression is the more severe form of recession or recession is the milder form of depression depending on your point of view.
But being able to differentiate between the two is very difficult. This is because the parameters for both can vary from one economist to another.
Recession is determined by many parameters including the real personal income. Real personal income means the amount of money the person takes home after taxes, that is the amount of money he can actually spend. The employment figures for a particular month can also help determine whether an economy is going into recession or not. If this is high then no, but if it is low then there is a possibility that the economy is heading for a recession.
During the time of recession the government may try to jumpstart the economy by changing the interest rates. By doing so, they infuse the citizens with money. The citizens then spend this money making it available in the market, thereby enabling a recovery.
Depression is caused by the same things that cause a recession. The only difference is that the magnitude of a depression is higher than that of a recession. While no one wants to see the economy go into depression many feel that the changing of interest rates to jump-start the economy is not the solution. They feel that by doing so the government is only further prolonging the decline. These people feel that a recession is a part of the market cycle and must be allowed to complete. This view has however not stopped many from reacting happily to the change in interest rates by the government.
Aheb Investment Group
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