Jargon Du Jour - Recession and Depression

There is an old Bob Hope joke that goes, "a recession is when your neighbor loses his job, a depression is when I lose my job." All kidding aside, there are some technical definitions for recessions and depressions, and you will get dinged on your homework if you use these terms incorrectly.

Recession: When real GDP declines for two consecutive quarters. Recessions are a part of the natural business cycle, where we have expansion followed by periods of retraction.

Depression: When real GDP declines by more than 10%, and typically lasts for more than three quarters. Unlike recessions, the economy requires some economic interventions such as fiscal or monetary stimulus in order to dig itself out of a depression.

For example, the Great Depression started in August of 1929 that lasted to March 1933 - real US GDP fell over 30%.  There was a brief recovery period followed by a second depression from 1937-1938 when the government reinstated austerity measures to pay down the debt. Since then, the US economy has suffered several recessions but has not experienced a depression.