Depression

An Economic Depression is a prolonged period of a severe downturn in economic activity. Leads to high unemployment, price deflation and higher debt defaults. Difficult to resolve and could last for years.

The last prolonged period of a severe downturn in economic activity, was in the 1930’s. An Economic Depression, as opposed to a Recession, is a much more extreme economic event. The causes of a Depression could be attributed to several factors. A spike in inflation, then rising interest rates, a falling Stock Market, leading to increasing unemployment, instability in the property market and debt defaults. Ultimately, the severity of the Depression could last years, with Gross Domestic Product (GDP) plummeting by more the 10%. The impact could lead to prolonged high unemployment, social unrest and price deflation. An Economic Depression is not easy to resolve. One key issue would be ensuring financial stability of the Banks, then implementing an expansionary Fiscal and Monetary Policy.