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Depression, Economic

  A depression, in economic terms, is a long-lasting recession in economic activity. Over a prolonged period, there is a low level of economic activity with very high unemployment and high excess capacity. Companies close, demand falls, unemployment rises and people get poorer.

It is the bottom, or trough phase of the business cycle when that bottom is unusually low. Some economists, such as Joseph Schumpeter (1883 - 1950), reserve the term for the phase of the cycle form trend line to trough, with the other three phases being revival from trough to trend line, prosperity from trend line to peak, and recession from peak to trend line. Today the term generally is reserved for a state of the economy which has very substantial unemployment of labour, many factories idle or producing well below capacity, and strong downward pressure or prices. The period from 1929 to 1933 in the USA is an extreme example of depression.

Less-severe downturns in economic activity are called recessions, a label that is not as scary and so might be less likely to cause further constriction in spending by households and businesses. Such sensitivity toward possible adverse psychological effects was evident when, at the end of 1990, Federal Reserve Chairman Alan Greenspan even avoided use of the term ‘recession’ and instead spoke of ‘a meaningful downturn aggregate output’. TF



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