A widespread decline in the economy that lasts for many months is known as a recession. On the other hand, when the downturn is more severe and lasts for several years referred to as a depression.
Several recessions and depressions occurred worldwide till now. The Recession and Depression have one common thing it impacts the economy in several ways.
The term “Great” is used here to show how they are the ones who impacted the world a lot compared to others. Many differences can clear up the confusion between the Great Recession and the Great Depression.
- The Great Recession occurred in the late 2000s and was caused by a financial crisis in the housing and banking industries. In comparison, the Great Depression occurred in the 1930s, caused by a stock market crash and widespread economic downturn.
- The Great Depression lasted much longer than the Great Recession, with unemployment rates reaching 25% in the 1930s. At the same time, the Great Recession had a shorter duration and lower unemployment rates.
- The government response to the Great Recession was much more proactive than during the Great Depression, with stimulus packages and other measures to prevent a complete economic collapse.
The Great Recession vs The Great Depression
The Great Depression of the 1930s was caused by the stock market crash of 1929, leading to high levels of unemployment, poverty, and a decline in economic activity. The Great Recession was caused by the collapse of the housing market in the US, leading to high unemployment, and declining home values.
The financial crisis of 2007-09 sparked in the United States as an economic recession and was termed the Great Recession. Since the Great Depression, it has been the deepest and longest economic downturn in several countries. It began in late 2007 and lasted till mid-2009.
From 1929 to 1939, a worldwide economic downturn was termed the Great Depression. In the industrialized western world, this depression was the most severe and the longest.
It originated in the United States and caused severe unemployment, acute deflation, and drastic output declines in the world.
|Parameters of Comparison||The Great Recession||The Great Depression|
|Change in prices||+0.5%||-25%|
|State response||The federal stimulus plan gave fiscal relief to states||Raises taxes, cuts spending|
What is The Great Recession?
The period between 2007 and 2009 was marked by a general decline observed in global and national economies, termed the Great Recession. The timing and scale of the recession vary across the world.
Normal international relation disruption was one of the serious results of this recession. In the financial system, a combination of vulnerabilities started developing and caused the Great Recession.
The triggering events also boosted up recession which started in the United States due to the bursting housing bubble in 2005-2012. IMF said this was the most drastic financial and economic crash since the Great Depression.
The homeowners abandon their mortgages when housing prices fell. In 2007- 2008, there was a decline in investment banks that generally held the value of mortgage-backed securities.
It caused many to bail out or collapse. This phase was also known as the subprime mortgage crisis.
The impact of this recession across the world is not felt equal. The world’s most developed economies, like South America, Europe, and North America, fell into a severe sustained recession.
Countries like Indonesia, India, and China suffered less impact because their economy was growing substantially during that period.
What is The Great Depression?
During the 1930s, there was a severe economic depression across the world, termed the Great Depression. It began in the United States being, but the timing varies worldwide of this depression.
It is considered the most widespread, deepest, and longest depression of the 20th century. It was started in the United States when on September 4, 1929, there was a major fall in stock prices.
On October 29, 1929, the global news was the stock market crash. This day is also known as Black Tuesday.
Worldwide GDP fell 15% between 1929 and 1932. The federal government spent about 1.5% for one year during the Great Depression as an emergency fund to combat this situation.
Both rich and poor countries suffer devastating effects due to the Great Depression. Tax revenue, personal income, prices, and profits dropped, whereas more than 50% of international trade also fell.
Heavy industry dependents cities across the world were especially hit hard. Rural areas and farming communities suffer due to the 60% price fall of the crop.
Areas that were mainly dependent on primary sector industries like logging and mining suffered the most. The U.S. economic decline was the only factor behind pulling down other countries.
Main Differences Between The Great Recession and The Great Depression
- The Great Recession originated from the bursting of the housing bubble in 2005-06, whereas a major fall in stock prices during September 1929 in the Great Depression caused a global financial crisis.
- During the Great Recession, the US GDP witnessed 4% and 5% of the global GDP. On the flip side, the US GDP during the Great Depression declined by up to 30% and the global GDP up to 27%.
- In the Great Recession, the Dow lost nearly 50% of its value even before recovering, while the value lost by the Dow Jones industrial during the Great Depression was about 90%.
- During the Great Recession, 57 banks fail, which represents 0.6% of all banks. But in the Great Depression, 9,000+ banks fail, which represents 50% of all banks nationwide.
- When it comes to emergency spending programs, 2.5% of GDP for two years was spent by the federal government during the Great Recession, whereas the federal government spent 1.5% for one year during the Great Depression.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.