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Depression and depression are two economic concepts that overlap with each other and cause confusion for many. In general, stagnation and depression are always associated with a bad economic situation. What most do not know is that both recession and recession have many positive effects as well What is the difference between recession and depression?
There are many examples that show the difference between a recession and a recession. We can mention a simple example that the average consumer can understand. For example, when one of your relatives loses his job, the financial burden is lighter. The so-called recession. If you are the one who lost his job, the financial burden will be heavier. It is depressed.
First, we need to understand what the causes are. How do they create positive and negative effects on the general economy? To gain a broader understanding of how they work and how to survive.
The difference between recession and depression
What is stagnation?
There are two famous definitions of stagnation, one of which is known as two consecutive quarters of negative economic growth. The second (according to the US National Bureau of Economic Research) describes the recession as a significant decline in national economic activity lasting for months. Many economists believe that recession is a natural part of the economic cycle, which is experiencing highs and lows.
How does it happen?
The growth of an economy depends on the balance between production and consumption of goods and services. The higher the economy, the higher the volume of income and consumer spending. But because the world is not perfect, at some point economic growth begins to slow down. This decline may be due to a simple factor such as oversupply, in the sense that manufacturers are producing at higher than required levels.
When this occurs, demand for these commodities declines, leading to slower earnings, lower income and lower stock markets.
Historical examples:
Since the mid-1850s, the United States has experienced 32 recession periods, according to data from the US National Bureau of Economic Research, and the length of most of them varied, but the average recession during those periods was close to 10 months.
The shortest recession lasted for 6 months (from January 1980 to July of the same year), while the longest two periods of stagnation lasted for nearly 16 months (November 1973 to March 1975 and July / July 1981 to November 1982).
What is a recession?
Is simply a severe economic disaster in which real GDP is reduced by at least 10%. The recession is far more severe than the recession, and its effects can last for years, and indeed it is a nightmare for business, banking and manufacturing activities.
How does it happen?
Depression occurs when several factors combine with each other at the same time. These factors include overproduction and low demand, which creates a state of fear fostered and expanded by investors and corporate panic. Exhaustion of supply and fear of investors lead to a sharp drop in corporate spending, with the economy slowing, unemployment rising, wages falling and purchasing power eroding.
Historical examples:
According to the above definition, there are many cases that can be considered as depressions, such as: the decline of the Indonesian GDP in 1998 by 18% and Thailand's GDP down by 15% in the two years ended in the first quarter of 1998.
- It also applies to Malaysia when its gross domestic product (GDP) dropped by 11% in the year ending December 1998 and Finland, whose economy contracted by 10.6% between 1990 and 1993, due to the fall of its main trading partner at the time , Soviet Union.
The pros and cons of recession and economic recession
The recession and the economic recession are characterized by many negative and positive repercussions that follow, at the level of the general economic system. Which we can use to gain a greater understanding of how they work and how to survive.
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The negative effects of recession and economic recession:
1. High unemployment:
Overall, high unemployment is a classic sign of both recession and recession, leading to lower spending by consumers and job cuts by companies to counter the decline in profits. The difference between recession and recession is that the unemployment rate in recession is less severe than in the recession. Similarly, unemployment rate of stagnation in the range of 5 to 11% and unlike the Great Depression (1929-1933) unemployment rates have become from 3% to 25% 1933.
2- Economic contraction
Both stagnation and recession lead to a major deterioration in the economy. During periods of growth, companies keep increasing supply to meet the needs of consumers, but at some point the supply will be more than what is needed in the economy and when this happens with the slowdown of the economy as demand slows down, stagnation and depression is a phase to eliminate all excesses In the economy but this process is painful and may be affected by a lot
3. Fear
Recession and recession make consumers fear a lot as economic growth slows and unemployment rises. As a result, consumers may fear that things will not improve soon, leading to a reduction in spending, which also affects the economy's further slowdown and exacerbation.
4 - decline in the value of assets
Asset and property values ​​are falling during periods of recession and recession due to slower earnings as a result of the decline in economic growth. This leads to a sharp drop in stock prices due to slower profits and negative corporate expectations. The decline in new investments in the economy may also affect many assets.
The positive effects of recession and economic recession: