Difference between Great Depression and Recession

Great Depression

The Great Depression was a worldwide event that resulted in a huge economic downturn for multiple countries. It began in 1929 and lasted almost a decade till 1939. It was, by far, the longest as well as the most severe depression that the industrialised and developed countries of the western world (including America and Europe) had to go through. It led to severe consequences for those nations including fundamental changes in the economic institutions, the overall macroeconomic policy, as well as the economic theories that drove industrial and business activities. The point of origin of the great depression was in the United States of America. But it ended up causing a drastic decline in the economic output in many countries across the globe that resulted in a severe unemployment crisis, along with acute deflation. The social and cultural effects of the great depression were also very wide and long-lasting. There was a significant decline in the industrial production in the United States along with a downward slide in its Gross Domestic Product (GDP). There were several causes for the great depression including:

  • Decline in spending by consumers
  • Stock market crash
  • Monetary contraction
  • Problems within the banking industry

Ultimately the great depression has ended up causing a much wider impact in the economy of several developed countries compared to the 2008 recession. In general, the great depression is much more severe in its outcome for a country’s economy compared to recession.

Recession

A recession is defined as the contraction of a business cycle which takes place in the event of a general decline in the economic activity, within one or more countries. The main causal event in the case of a recession is a widespread drop in the spending by the consumers, which can also lead to an adverse demand shock in the market. It can be triggered by a number of events which include the following:

  • Financial crises
  • External trade shock
  • Adverse supply shock
  • Bursting of the economic bubble
  • Natural or man-made disaster

A recession often results in a significant decline of the economic activity that spreads across a market, and lasts for more than a few weeks or months. Since we are living in a globalised world, this recession can spill over to other countries as well. It is generally characterised by a significant drop in the real GDP, income, employment figures and industrial production numbers. In a number of countries, a recession is defined as a negative economic growth (in terms of its GDP) for two consecutive economic quarters. A number of governments respond to the recession by taking measures like bringing in expansionary policies on a macroeconomic level. They try to undertake activities like increasing the money supply, improving government spending or decreasing the taxation rates to bring their economy out of recession.

Difference between Great Depression and Recession

There are several points of difference between the Great Depression and Recession. Both of them involve a slowdown in economic activities along with job losses, decrease in GDP and industrial production, but the magnitude of these losses are also very different. We will explore some of them in the table below:

Great Depression

Recession

Definition

A Great Depression is characterised by severe curtailing of economic activity due to causes like the slowdown in industrial production, bursting of a bubble, adverse trade events, etc.

A Recession is also characterised by a slowdown in economic activities due to loss of jobs, external trade problems, natural or man-made disasters, etc. but the scale and severity are lower compared to the great depression.

Scale

The overall scale of impact of the great depression on the economy is far more severe than recession.

The overall scale of impact of the recession on the economy is far less severe than the great depression.

Duration

A great depression, like the one which took place in the 1930s, can last for several years.

A recession, like the one which took place during 2008, can last for several months.

Impact on the business cycle

A great depression can lead to a major downsizing of the business cycle, which can take years to recover from.

A recession can lead to a downward trend in the business cycle, which can take months to recover from.

Reach

The reach of a great depression is wider than a recession. It can impact almost the entire globe.

The reach of an event like the recession is relatively narrower than the great depression. It is generally limited to a small group of nations.

Conclusion

It is clear that in spite of several differences between the great depression and the recession, both these events can lead to a huge economic downturn, along with adversely impacting a number of individuals and institutions. So it is important to study these two economic phenomena to understand their effect on businesses and governments around the world. Governments should also focus on identifying possible events or activities, which may result in an economic downturn and prepare their countries to brace for its impact.

Frequently Asked Questions

When did the Great Depression start in the United States and how long did it last?

The Great Depression started in the United States in 1929, and it lasted for almost 10 years till 1939.

What were some of the main causes of the great depression of 1929?

Some of the major causes of the great depression in the year 1929 are as follows:

  • The crash in the stock market
  • Monetary contractions
  • Decrease in international lending
  • Increase in the interest rates

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