What’s recession?
It’s a temporary, but prolonged, period of economic decline, marked by a slowdown in industrial production, and a fall in consumer spending, sales, and employment.Technically, this fall in economic activity, or negative growth in gross domestic product, should last at least two consecutive quarters, that is, six months, for it to qualify as a recession.
Recession is considered an intrinsic part of an economic or business cycle, starting when the economy reaches a peak and ending when it touches a bottom or trough. There are several triggers or causes for a recession and various indicators that can hint at an impending slowdown.
What’s depression?
A prolonged recession leads to an economic depression. It’s a period of severe and long-term recession resulting in a decline in economic activity that can last several years.
Most macroeconomic factors and indicators, including the GDP, industrial production, employment, interest rates, stock markets, international trade, consumer spending, and currency value, move into negative territory during this period.
Businesses and industries can face bankruptcy, and countries can face debt defaults. One of the most severe depressions in history has been the Great Depression of the 1930s, which started in 1929, lasted till 1939, and was triggered by a stock market crash.
How does the government deal with it?
The government can take various monetary and fiscal policy decisions to handle recessions and depressions. These can include the following:
Rate cuts
Lower interest rates encourage borrowing by corporates and industries, which stimulates growth, as well as higher consumer spending.
Increased spending
Government spending on infrastructure and other schemes pushes demand and employment.
Tax rates
Cutting income tax rates puts more money in the hands of consumers, leading to higher spending.
Bailouts
The government can help floundering industries to maintain stability.
