Select your language

Suggested languages for you:
Log In Start studying!
StudySmarter - The all-in-one study app.
4.8 • +11k Ratings
More than 3 Million Downloads
Free
|
|

All-in-one learning app

  • Flashcards
  • NotesNotes
  • ExplanationsExplanations
  • Study Planner
  • Textbook solutions
Start studying

Recessions

Save Save
Print Print
Edit Edit
Sign up to use all features for free. Sign up now
Recessions

Although recessions are part of the economic cycle, no two recessions are the same. Some are like a light breeze and others, like a devastating tornado. Read on to learn more about recessions.

What is a recession?

Before we look at some real-life recessions, we need to understand what it means.

A recession is a significant decline in economic activity which lasts for months or years. In the UK, a recession happens when there is negative economic growth for two consecutive quarters.

Recessions have some general characteristics like lower unemployment, job cuts, and lower consumer and business spending. Generally, though, a recession occurs every eight to ten years.

Economic recession examples

There are many real-life examples of recessions. Some are global recessions and some a subject to one or a few specific countries. Each recession has its own explanation. Here, we will give you a quick summary or a key feature of the recession and hopefully you will be eager to read more about each of them.

Great Depression

In October 1929, Wall Street experienced a stock market crash that had a detrimental effect on almost every country in the world, including the UK. The impact of this crash was devastating on many different countries. In the Great Depression explanation, you will learn about its causes and its impacts, specifically on unemployment rates.

2008 Financial Crisis

The collapse of the investment bank Lehman Brothers in 2008 sent shockwaves throughout the global financial system. This recession carried on for five successive quarters and its impact is still felt today. In the 2008 Financial Crisis explanation, you will learn about the cause of the crisis, its impacts, and what we have learnt from it.

Oil Crisis (1973)

During the 70s, the world economy experienced two major oil crises, each caused for different reasons. These had a significant impact on the US economy and you can learn all about them in the Oil Crisis (1973) explanation!

Dot-com Bubble

The Dot-com Bubble crisis is a tale investors will tell warning of the dangers of new and unexplored business ventures. It occurred during the early 2000s when the internet was new and exciting. The Dot-com Bubble explanation will tell you all about how this bubble started and what caused it to pop.

Tulip Mania

Tulips are really pretty flowers, but how could flowers create a recession? That is what happened in 1634, the earliest record of a market bubble. In the Tulip Mania explanation, you will understand how this market bubble started, how it burst, and what we can learn from it.

Japan: deflation

Japan’s deflationary spiral is one that has been happening for more than 20 years. Despite government attempts, deflation in Japan still hasn't gone away. In the Japan Lost Decades explanation, you will learn about how deflation in Japan first occurred and its effects on the Japanese economy.

Argentine Great Depression

The Argentine Great Depression has a long timeline with many causes and consequences for the Argentine government. In the explanation about it, you will understand how it was caused, its impacts on the Argentine economy and if the economy will ever recover.

Crisis in Venezuela

The Crisis in Venezuela is an ongoing crisis since 2010. It has many devastating effects on Venezuelan citizens and has even sparked mass emigration. In the explanation about Crisis in Venezuela, you will learn all about how this crisis started, its economic impacts, and if there is hope for the Venezuelan economy.

Lebanese Economic Crisis

The Lebanese Economic Crisis started in 2019 and was brought about by the shortage of US dollars. This explanation will help you understand the cause of the crisis and its economic impact on Lebanon.

All the explanations of the various recessions are good to keep in mind for any upcoming exams!

Economic depression and recession

Although they have similar indicators and causes, there is a difference between depression and recession. This difference is seen in their severity, duration, and overall impact. Putting it into perspective, the US economy shrank 33% peak-to-trough during the Great Depression and unemployment peaked at 25%, whereas the Great Recession saw an unemployment rate of 10% and a 5% decline in GDP.

Economists define a recession as a significant decline in economic activity spread across the whole economy that lasts for a few months. This is accompanied by a visible reduction in real GDP, real income, employment, industrial production, and wholesale-to-retail sales. Recessions begin after economies reach a peak in their economic cycles.

A depression is often described as a severe version of a recession. In other words, there could be a fall in real GDP, which is very dramatic and lasts longer. However, it is not necessarily part of the economic cycle.

The table below explains the difference between the two terms in more depth.

RECESSION

DEPRESSION

A country enters a recession when it reports two consecutive quarters of negative GDP growth.

A country enters a depression when a recession evolves into a sharper and longer downturn. Some believe GDP must decline by at least 10%.

Recession hits people’s income and prompts them to cut spending, promoting businesses to cut jobs and reduce investment.

Depressions are more destructive as the length of any crisis weakens the economy's ability to recover.

Recessions can hit an individual country or region but can be felt globally.

The severity of the downturn, twinned with how connected international trade is, means depressions will undoubtedly have a global impact.

Table 1. Difference between recession and depression.

The impact of economic recessions

There are many impacts of a recession on the different economic agents. Some impacts are:

  • Unemployment. The effects of recessions are clearer for those in the workforce, who are at risk of losing their jobs. During recessions, there is usually a dramatic fall in the level of employment in a country. This is usually because firms tend to go bankrupt. This means that they have to lay off workers to cut costs, while only hiring a very limited number of new employees or workers.
  • Fall in output and income. During a recession, firms -particularly the weaker ones- tend to be driven out of work. This is due to the fact that with recessions, firms are unable to make ends meet and maintain productivity. Furthermore, while more people are losing their jobs, those that remain might experience salary cuts. This means lower incomes, which make it difficult to maintain living standards, as living costs go up.
  • Fall in the value/prices of assets. During a recession, there could be a drop in the price of houses, which is due to the negative impact that recessions have on employment and incomes, as people are less capable of paying rent or buying houses. Although this could be to the advantage of those looking to buy a home, for those who own them, this is a cost due to the wealth effect.
  • Increased government borrowing. During the recession, the government tends to take up more debt than it normally would. A government does this to help cushion the shocks caused by the recession. With the money, the government increases spending in areas pertaining to welfare, such as housing benefits, employment benefits, and income support.

Recessions - Key takeaways

  • A recession is a significant decline in economic activity which lasts for months or years. In the UK a recession occurs when there is negative economic growth for two consecutive quarters.
  • Some examples of recessions are the 2008 financial crisis, the dot-com bubble, the 1973 oil crisis and the Great Depression.
  • A depression is often described as a severe version of a recession. In other words, there could be a fall in real GDP, which is dramatic and lasts for a longer period.

  • The main difference between a recession and depression is the level of severity of the economic contractions, their duration, and overall impact.

  • The impacts of recessions include higher unemployment, fall in output and income, fall in value/prices of assets, and increased government borrowing.

Frequently Asked Questions about Recessions

A recession is a significant decline in economic activity which lasts for months or years. In the UK, a recession occurs when there is negative economic growth for two consecutive quarters.  

The main difference between a recession and depression is the level of severity of the economic contractions, their duration, and overall impact. 

The impacts of recession include unemployment, fall in output and income, fall in value/prices of assets, and increased government borrowing.

The great recession refers to the economic recession that was precipitated in the United States by the financial crisis of 2007–08 that quickly spread to other countries.

Final Recessions Quiz

Question

What is a recession?

Show answer

Answer

A recession is a significant decline in economic activity which lasts for months or years. In the UK, a recession occurs when there is negative economic growth for two consecutive quarters. 

Show question

Question

What is a depression?

Show answer

Answer

A depression is often described as a severe version of a recession. In other words, there could be a fall in real GDP which is very dramatic and lasts for a longer period in time.

Show question

Question

Is a depression part of the business cycle?

Show answer

Answer

Yes, it comes after the recession in the business cycle

Show question

Question

What are the characteristics of a recession?

Show answer

Answer

  • A country enters a recession when it reports two consecutive quarters of negative GDP growth. 
  • Recession hits people’s income and prompts them to cut spending, promoting businesses to cut jobs and reduce investment.
  • Recessions can hit an individual country or region, but have the ability to be felt globally.

Show question

Question

What are the characteristics of a depression?

Show answer

Answer

  • A country enters a depression when a depression when a recession evolves into a sharper and longer downturn. Some believe GDP must decline by at least 10%.
  • Depressions are more destructive as the length of any crisis weakens the economy's ability to recover.
  • The severity of the downturn, twinned with how connected international trade is, means depressions will undoubtedly have a global impact.  

Show question

Question

What is the key distinction between recession and depression?

Show answer

Answer

The main difference between a recession and depression is the level of severity of the economic contractions, duration, and overall impact. 

Show question

Question

What impact does economic recession have on the economy?

Show answer

Answer

The impacts of recessions include an increase in unemployment, a fall in output and income, a fall in value/prices of assets, and increased government borrowing. 


Show question

Question

When do recessions occur?

Show answer

Answer

Every 8-10 years.

Show question

Question

Explain how higher rates of unemployment are a consequence of recession.

Show answer

Answer

During recessions, there is usually a dramatic fall in the level of employment in a country. This is usually because firms tend to go bankrupt. This means that they would have to lay off workers in order to cut costs, while only hiring a very limited number of new employees or workers.

Show question

Question

Explain how a fall in income and output is an impact of a recession.

Show answer

Answer

During a recession, firms - particularly the weaker ones - tend to be driven out of work. This causes people to lose their jobs and those that remain might experience salary cuts. This means lower incomes making it difficult to maintain living standards, as living costs have gone up.  

Show question

Question

Explain how the fall in asset prices is a consequence of a recession.

Show answer

Answer

During a recession, there could be a drop in the price of houses, which is due to the negative impact that recessions have on employment and incomes, as people are less capable of paying rent or buying houses. For those who own houses, this is a cost to them due to the wealth effect.

Show question

Question

Explain how increased government borrowing is a consequence of a recession.

Show answer

Answer

During a recession, the government tends to take up more debt than it normally would. This is done by the government to help cushion the shocks caused by the recession.

Show question

Question

What are some examples of real life recessions and depressions?

Show answer

Answer

Great Depression 

2008 Financial Crisis

Oil Crisis (1973)

Dot-com Bubble

Tulip Mania

Japan: Deflation

Argentine Great Depression

Crisis in Venezuela

Lebanese Economic Crisis

Show question

Question

When did the Great Depression start?

Show answer

Answer

1929

Show question

Question

What is the earliest record of a recession?

Show answer

Answer

1634 - Tulip Mania

Show question

60%

of the users don't pass the Recessions quiz! Will you pass the quiz?

Start Quiz

Discover the right content for your subjects

No need to cheat if you have everything you need to succeed! Packed into one app!

Study Plan

Be perfectly prepared on time with an individual plan.

Quizzes

Test your knowledge with gamified quizzes.

Flashcards

Create and find flashcards in record time.

Notes

Create beautiful notes faster than ever before.

Study Sets

Have all your study materials in one place.

Documents

Upload unlimited documents and save them online.

Study Analytics

Identify your study strength and weaknesses.

Weekly Goals

Set individual study goals and earn points reaching them.

Smart Reminders

Stop procrastinating with our study reminders.

Rewards

Earn points, unlock badges and level up while studying.

Magic Marker

Create flashcards in notes completely automatically.

Smart Formatting

Create the most beautiful study materials using our templates.

Sign up to highlight and take notes. It’s 100% free.