When interest rates increase, the liquidity of assets, like stocks and bonds, decreases. The economy is constantly changing, but major events like political conflict or pandemics can disrupt the supply chain and cause inflation. This can lead to fewer people taking out loans or making large purchases because they simply can’t afford it, and banks experience a significant decline in business. When prices rise, banks will raise interest rates alongside them. If supply begins to outweigh demand, the prices of goods and services rise. A recession’s primary causes include the following:
This results in layoffs and, in extreme cases, bankruptcies. People stop buying, so supply begins to outweigh demand. 5 causes of recessionĪ recession usually means that there is a widespread loss of consumer confidence in businesses. It’s important to remember that although they appear similar, a recession and a depression are not interchangeable terms. Panic and even fear take hold, and rash actions on the part of consumers, companies, and even the government can lead to poor decisions and a longer period of unproductiveness. Recession versus depressionĬan affect foreign countries and their economies a stall in global tradeīoth a recession and a depression are known for a sharp, continual downward spiral of economic activity. Foreign markets also dealt with the repercussions of the Great Depression. It wasn’t until the 1950s that the American stock market was finally able to recover following the Great Depression. High unemployment rates alongside stalled domestic business activity and international trade are two noteworthy attributes of a depression.Įffects of economic depression are experienced nationally and globally. Compared to a recession, it’s significantly more harmful to an economy, and occurs when the GDP plummets quickly and severely. What is a depression?ĭepression is a prolonged recessionary state. Reductions in income, employment, industrial production, and fluctuating prices for goods and services are just a few other noteworthy characteristics of a recession. What is a recession?Īn economic recession is a decline in a country’s Gross Domestic Product (GDP) or a negative GDP.
Read on to learn more about a recession, how it compares to a depression, and a brief overview of our current financial landscape. The only depression was the Great Depression of the 1930s. Generally, the length of each phenomenon varies. The main difference between a recession and a depression is that the former refers to an economic decline that lasts for months while the latter is a decline in economic activity that lasts for years.