For many, the two terms recession and depression are synonymous; for one to be in a depression, there must first be a recession. Many across the globe are talking about recessions and their potentially being a depression, much like the one of the thirties in the states.
In order to understand the concepts of a recession; you must first understand the term GDP and its effect on the world. Economists have varying answers to this question; many feel it is based upon the GDP or Gross Domestic Product. For others, it’s based upon other trends like unemployment and consumer confidence in conjunction with the Gross Domestic Product.
Gross Domestic Product or GDP is a total sum or market value assigned to one’s country for all the goods and services consumed, invested, spent, brought in and taken out. In regards to your own finances; it would be like taking all your assets, totaling them up and subtracting all your debt, but on a much larger scale. The GDP of a country is basically it’s worth or net value. Consumption for your countries GDP includes the amounts spent on household foods, rent, and other expenses. Investments include both business and personal assets; like new homes or the purchase of machinery. Government spending is then calculated into the formula; the amount spent on the military, paying government workers, paying for other related government good or service. Gross exports and gross imports are then calculated; money coming in from exports and money coming out of the country for imported items. Together the sums of all are taken away or added to form the countries GDP.
If a country experiences a recession; the formal definition explains it as a drop in GDP for two or more consecutive quarters. Generally speaking, a recession is a drop of less than ten percent from current quarters; if more than ten percent, the term used would be a depression. Many small, third world countries experience depressions quiet often. The main worry for those in the western hemisphere is the lack of a true depression for years. Countries like the UK and the United States; as well as, other civilized countries have not experienced low declines to their GDP for years, until now.
The government has jump started the turn for the most part, money is being allocated to banks for loans; however, consumers and businesses alike must still have the confidence to seek loans for new projects and homes. As buying confidence and new jobs are created, ultimately this will affect the GDP; ending the recession. During this time an expansionary period exists; GDP is on the rise and generally within one year the recession will end. The recession that is engulfing the lives of many has been treated rapidly and hopefully will not keep declining; Canada and the US are reporting rates of unemployment rising slowly. If work continues on a global effort and in the homes and businesses of those that line our streets; most likely a depression will not occur.
