Depression or Recession? Determining Whether the U.S Essay

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Depression or Recession?

Determining whether the U.S. economic crises of 2008 is a "depression" or a "recession" depends largely on whether one applies traditional one-dimensional criteria (such as the absolute measure of decline in GDP) or multi-dimensional criteria (such as: 1. The complex interrelationship between consumption and leisure and 2. The underlying financial mechanisms that trigger the event). Generally, to the extent one relies on traditional one-dimensional criteria, the economic crisis of 2008 was a recession; to the extent one relies on more complex criteria, it more closely resembles a depression, particularly in the manner that it occurred.

One of the most important traditional "textbook" criteria for identifying an economic depression is change in GDP. By that one-dimensional criterion, any economic downturn that results in a reduction in the national GDP of 10% or more is a "depression" whereas a lesser reduction in GDP is a "recession." Another traditional one-dimensional criterion of economic depressions is a high rate of unemployment. By that measure, the Great Depression was a bona fide depression because unemployment reached nearly 25% of the U.S. workforce. Meanwhile, the 10% unemployment rate of the 2008 economic crisis suggests that it was merely an economic recession (Judis, 2010).

However, by a more complex analysis of other factors, the economic crisis of 2008 was more similar to a depression, primarily by virtue of the underlying precipitating factors that caused it (Judis, 2010; Ohanian, 2010). First, economic recessions reflect ordinary (downward) fluctuations in business cycles. Conversely, economic depressions are precipitated by specific financial crises such as worldwide gold outflow-related global inflation in 1893, the stock market crash of 1929, and the sub-prime mortgage crisis of 2007 and 2008. Second, economic depressions are precipitated by… [END OF PREVIEW] . . . READ MORE

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