Economics Essay Example | Topics and Well Written Essays - 1500 words - 3

Economics - Essay ExampleThe fiscal expansion which came about as a result of World War 11 led to the end of that period of contraction. As some part of the world are recovering from what has been described by many as the Great Recession, the debate is on as to whether or non the world went through a depression or a recession. thus there are some similarities with the Great Depression of the 1930s but the official authorities ease up not characterised it as such. This paper defines recession and depression and explains the distinctions between them. It also looks at similarities and or differences in the lead up to the Great Recession which was triggered by the volatility in the stock market and a mention crunch in 2007, and those of the Great Depression which lasted from 1929 to 1933 and extended into the 1940s. Definitions The Business Cycle Dating Committee (BCDC) at the National Bureau of Economic Research (NBER) defines a recession as a time when personal credit line act ivity is at its peak and therefore starts falling until it reaches its lowest level (bottom out) a trough (Recession n.d.). A recession normally lasts for a year and is part of a regular demarcation cycle which involves contractions (recession) and expansions. However, there are others which have lasted for up to two years. An example is the Japans scotch slowdown in Japan in the 1990s which lasted for 2 years to March 1999 can be considered as a recession since the largest peak to trough decline in gross domestic product during that period was 3.4%. A depression on the other hand represents a slowdown in economic activity where gross domestic product falls by more than 10% (Recession n.d.). It is characterised by rising unemployment, a sustained long barrier downturn in the economy and normally last for more than three years. The great depression which lasted from 1929 to 1933 and which was protract well into the early 1940s with the double-dip is a prime example of a depressio n. During this period real GDP fell by 30% which is above the 10% benchmark. Unemployment levels soared to never before seen levels and a large bod of families and single persons were losing there homes. Thousands of business closed there doors while others downsized. Differences between a recession and a depression The Economist (2009) quotes Saul Eslake, the Chief Economist at ANZ Bank as saying that the difference between a recession and a depression is more than just size and duration as noted in the definitions above. Eslake indicates that the cause of the downturn is also of importance (qtd. in The Economist, 2009). Eslake went on to state that a recession usually results from tight monetary policies while a depression is the result of a bursting asset credit bubble, a sharp decline in credit (contraction) and a fall in the general price level (The Economist 2009). Eslake further stated that during the Great Depression prices fell by approximately 25% and nominal GDP shrank by almost 50%. A depression Eslake suggested does not have to be as severe as in the 1930s. They can either be easy or severe. Additionally, Eslake (qtd. in Economist 2009) indicates that the economic downturns (slumps) which followed on the heels of the collapse of the Soviet Union and the ones which characterised the Asian crises were not depression. The reason Eslake states is that inflation increased sharply. Eslake also suggested that the downturn in the e