In Economics, What is a Depression
Depression in Economics
It is considered as an economic slow down that lasts for some years. This period affects the entire the country in all fields like finance, commerce, low prices and global share market is below the required rates. A less crunch is termed as recession which is normally a part of the economic cycle. Recession marks a slow down in economic activities and this is caused due to imbalance in goods manufactured and the consumer’s incapacity to buy them. If this period lasts for too long then depression sets in.
A depression occurs when there is reduced demand, over production of goods, dismissal of employees causing unemployment issues, cost cutting on wages etc. when this condition prevails the economic recovery what we call is generally slow. Most of the business suffers huge loss at the on set of depression. For this reason the organizations resorts to cost cutting on labor forces, some times they may also have to lay off certain employees of the firm.
There are several reasons for economic depression to happen in any country. Let us take the example of great depression; the main reasons for this may be as follows:
- Stock market clang: the stock market of any country play a vital role in showing the country economy at the global market. If this condition shows a continuous red mark then signs are the depression is setting in.
- Bank failures: the banking firms were not willing to lend money to companies fearing great depression since there money would be lost. This lead to less and less expenses due to shortage of money flow in the economy.
- Less purchasing: because of stock market clang customers stopped purchasing goods and the goods that were manufactured were left alone with no buyers. This led to decline in the number of things manufactured; slowly the work force had to be trimmed because of cost cutting. This led to unemployment to flare up indicating economic depression.
- Economic policy with other countries: when the business of a country starts slowing down, the other countries starts to charge more taxes to cover up the depreciated costs for imports and exports to and from the country facing economic depression.
- Inflation: As the economy slows down because of the above factors inflation sets in causing high rise in prices of essential commodities, interest rates zooms creating lending of money a very critical issue.
The economic down turn creates an intrinsic unpredictability in any kind of economy be it democratic or capitalistic. Hence every economy should have some governing command and better control over stock markets. Though even today economists are still trying to find out what caused the Great Depression which was worst in American history.