Question 1

What is an economic depression?

Accepted Answer

The definition of an economic depression is a period of prolonged and extreme downturn in the economy. The best-known example is the Great Depression, which lasted from 1929 to 1939.

Question 2

Which economic factors led to the Great Depression?

Accepted Answer

Several factors led to the Great Depression, but the most widely-accepted trigger was the stock market crash in October 1929. Many people lost their money in the collapse, which resulted in a loss of confidence in the banking system. In turn, several “bank runs” in which mass groups of people withdrew funds from their bank accounts took place, leading to the closing of almost 7,000 banks by 1933.

Question 3

What typically characterizes an economic depression?

Accepted Answer

You can usually find the following during a depression:

High unemployment rate (typically more than 20%)
A decline in the real GDP (generally more than 10%)
Devaluation of assets, such as stocks and homes
Increase in debt defaults, such as loan and credit card balances

Question 4

What happened to the unemployment rate during the Great Depression?

Accepted Answer

Since the Great Depression affected several business sectors (manufacturing, service, agriculture, trade, etc.), multiple organizations closed or laid off workers to stay afloat. By 1933, almost four years after the stock market collapse, the unemployment rate in the U.S. reached a record high of over 25%.

Question 5

How can you differentiate depression vs. recession?

Accepted Answer

You can also call depression an extreme recession. Both events share similarities, such as a shrinking economy and rising unemployment. However, depression has more severe effects and is felt globally.

The time it takes to recover from a depression also differs from the recovery time of a recession. Recessions usually last several months, while depressions can span years.

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