Depression

There is no single official definition of a depression, but the term is used for downturns of exceptional severity. Some economists use rough guidelines, such as a fall in real GDP of more than 10%, or a recession lasting several years.

The best-known example is the Great Depression of the 1930s. In the United States, output fell by around a quarter and unemployment rose to roughly a quarter of the workforce. Thousands of banks failed, prices fell sharply and the downturn spread across much of the world.

Depressions are often associated with financial crises, collapsing banking systems, sharp falls in prices and spending, and policy mistakes that worsen the downturn rather than relieving it.

The experience of the Great Depression shaped modern economic policy. Today, governments and central banks tend to respond quickly and forcefully to severe downturns, with measures such as lower interest rates, support for banks, deposit insurance and increased government spending, partly to prevent recessions from turning into depressions.