Depression

Posted in Finance, Accounting and Economics Terms, Total Reads: 630
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Definition: Depression

In economics or financial world, depression is a sustained, prolonged downturn of economy that lasts for two or more years. A depression is described by economic factors such as decreasing output, reduction in trade and commercial activities, non-availability of credit, bankruptcies and debt default. The investor sentiment is extremely negative in times of depression which causes low investment in the economy and downturn in consumption.


Both the GDP and GNP show reduction with greater business fiascos and unemployment. The term depression is specifically used for more severe downturns in the economy, a rule of thumb to determine a depression is when the real GDP fall by more than 10 percent.


The Great Depression: It began in 1929 after the Black Friday, U.S. stock market crash. A huge sell-off has begun after the stock market bubble bust. Many investor holding had become worthless. The great depression had initiated in the US but the economic impact was felt globally.

 

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