It is a long period of economic stagnation, during which overall economic activity declines, and productivity and spending decrease. A recession is associated with a decline in GDP (a country's overall economic output), increased unemployment rates, and fluctuations in the financial markets.
Causes of depression
Several factors cause depression, including:
- Reduced spending: When spending decreases, whether by individuals, companies, or the government, this can lead to decreased demand for goods and services, which contributes to decreased production and economic activity.
- Decline in investment: The level of investment in infrastructure and economic projects may decline, which negatively affects economic growth.
- Fluctuations in the financial markets: Fluctuations in the stock and currency markets can lead to economic disruptions and negative effects on confidence and investment.
- High interest rates: Raising interest rates by central banks may reduce lending and encourage saving, affecting economic activity.
- Structural changes: Changes in the structure of the economy or in specific industries can lead to a decline in some sectors and a negative impact on growth.
- Financial crises: The occurrence of financial crises, such as the global economic crisis in 2008, can cause significant deterioration in financial markets and the economy.
- Declining global demand: Decreased demand for exports can affect the national economy, especially if the economy relies heavily on international trade.
Types of depression
Depression can be divided into two main types:
- Total Depression: Occurs when aggregate demand in the economy decreases. When consumer, investment, and government spending decline, there can be a decline in demand for goods and services, leading to decreased production and an increase in unemployment rates.
- Production Backlog: Occurs when there is excess production or excess inventory without enough demand to accommodate it. When there is a buildup of goods or services without an increase in demand, it can lead to a decline in production and spending and a period of depression.
Economic depressions
Economic depressions occur in a context of declining economic activity and shrinking production and investment, causing a decline in aggregate demand and an increase in unemployment rates. These conditions may occur for a variety of reasons, and may be the result of internal or external factors. Here are some famous economic depressions:
- The 2008 global economic crisis: This crisis occurred beginning in the United States, where it witnessed a crisis in the mortgage sector, and its effects extended to all parts of the world. Unethical trading in mortgage loans and heavy involvement of banks caused a decline in stock markets and a collapse in some large financial companies.
- Depression after World War I: After the end of World War I, many economies were affected by a depression as a result of the high cost of war and unstable economic trades.
- Sovereign debt crisis in the Eurozone: At the beginning of the twenty-first decade, some countries in the Eurozone were affected by a financial and sovereign debt crisis, which led to volatility in financial markets and a deterioration in economic growth.
- Oil Crisis in the Early 1970s: There was a state of economic depression during the early 1970s due to the rise in oil prices as a result of the oil crisis in 1973, as oil producing countries boycotted supplies to countries that supported Israel.
1930s (Great) Depression: This depression occurred in the late 1920s and early 1930s and was one of the largest depressions in modern history. The United States and many other countries have experienced a sharp decline in economic output and a significant rise in unemployment rates.
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