A recession or depression happens when the demand for money is greater than the supply. When this happens, people stop spending their money. The factories don’t need to make as many products to sell because no one is buying them, so people lose their jobs. Then they have even less money to spend. This leads to a long slowdown in business activity. This is called a depression.
Recession and depression are common terms used in economics that describe periods of shrinking gross domestic product or GDP, which are often associated with falling stock market prices and rising unemployment.
Definition
Recession– A recession is often defined as any period where GDP falls for a six month period; recessions often continue long after an initial economic slowdown.
Depression – There is no exact definition for a depression but a depression is essentially a very severe recession; an economic downturn where GDP falls by a total of 10% or more is likely to be called a depression.
Effects
Recessions and depressions may have many wide reaching effects, such as low consumer confidence, widespread unemployment, inflation, and increasing numbers of personal and business bankruptcies.
Considerations
Since recessions and depressions usually cause stock prices to fall, they can disrupt retirement plans; this is because many people prepare for retirement by investing in the stock market.