What is the opposite of depression in economics? (+How it works)
This article will discuss what is the opposite of depression when talking from an economic perspective. For that, the article will explain what depression is from an economic perspective, and how each of them impacts people’s life.
What is the opposite of depression in economics?
The opposite of economic depression is an economic upswing or economic boom. It is a period in which some key indicators, such as the Gross Domestic Product (GDP), will rise. The productivity, business sales, and family incomes also rise.
When the economy is at a growing stage, there is also a high risk of inflation. That is because the demand for goods can be higher than the supply, which can cause companies to raise the price of the products.
To determine that an economy is at a growing stage, some economic indicators need to be considered, such as the employment rate, industrial production, and retail sales.
Looking at the world’s economic history, it is possible to notice that there have been 33 cycles of boom and depression that usually last around 37 months.
The beginning of an economic boom is marked by the rise and the positive results of GDP. When that happens, pretty much all the other economic indicators have already turned positive. The boom causes people to become more confident about spending money.
As said before, there have been many cycles of economic upswing. There was one in the 1920s, during which the American economy grew 42%. During this time, they produced half of the world’s goods.
During this period, the unemployment rate stayed around 4%, and the market increased in value by 20% each year.
This upswing was followed by the end of World War I, in which war veterans brought back home new perspectives and improvements, such as the auto assembly line. Another upswing of the economy was one that the American economy went through in the 1990s.
This upswing lasted until march of 2001, and in it, the GDP was positive for 120 months. This could have happened because inflation wasn’t as high, and there was also the start of the internet in 1991. That new technology had a huge impact on people’s lives and the way they bought things.
But to compare how the upswing of the economy, and the economic depression impact people’s day-to-day life, let’s discuss what economic depression is, and how it differs from economic recession.
What does depression mean in economics?
Depression from an economic perspective speaks of a moment in which the economy of a country is taking a downturn. It is what happens when the economy is in an extreme recession for more than 3 years.
Through this period, there will be a concrete decline in the Gross Domestic Product (GDP) of at least 10% a year. When an economy is in depression, there will be a high rate of unemployment, production, and economic growth.
It is usually common for economies to go through recessions, but for it to go into depression, is a lot rarer. The depression of the economy has a huge impact on people’s lives, not only because of unemployment but also for many other aspects such as the drop in the availability of credit.
Economic credit also causes lower productivity. Which can lead to many bankruptcies. It can also cause inflation to go low because people are not interested in buying things, and reduce trade and global commerce.
Economists disagree on how long the depression lasts. Some believe it lasts only the period with the economic decline, others say an economy is in depression until the moment the economy reaches a stable level.
The most famous economic depression people have experienced is the crash of 1929. This depression lasted a whole decade and started right after the stock market crashed. It happened because, after years of speculation in the stock market bubble, it burst, and people started to sell all of their stocks.
This economic depression began in the United States, but it was felt across the planet, is called The Great Depression. It led to poverty, people stopping consumption, unemployment, hunger, and political unrest.
But some people have trouble understanding what is the difference between depression and recession. Let’s discuss how they differ from one another.
What is the difference between depression and recession?
Some people may not understand there is a difference between an economic recession and an economic depression.
But it is important to know that an economic recession is a fairly normal part of the economy. An economy is considered in recession when its GDP goes lower for at least two quarters. That is different from depression when the GDP has an extreme fall for some years.
How do economic depression and upswing impact people’s lives?
The economic upswing and the economic depression both have a huge effect on people’s lives. When the economy is in an upswing, people can feel that the economy is working, and feel safe spending their money.
They can also feel like they are getting better job opportunities, which causes them to think they don’t need to delay making big purchases.
During the economic depression, people may not only feel the worsening of the economic scenario through the unemployment rates, but people will also buy a lot less.
Not only because of unemployment but because people feel so unsure of how the economy will react that they rather save whatever money they have left. And this can cause the economy to sink even lower.
Frequently Asked Questions (FAQ): What is the opposite of depression in economics?
What is Trough?
The trough in the economic context is a stage in economics in which the economic activity is going down, or in which prices are going down before they start to go up.
The business cycle is divided into 5 stages: expansion, peak, contraction, trough, and recovery. In the trough the economy is reaching its lowest point after contracting before it starts its recovery. Economists use the GDP to measure in what stage of the economic cycle the economy is.
It is usually hard to recognize trough when they are happening, it is usually something that economists can recognize when going through the history of an economic cycle. Its duration can vary. And it is only when the economic indicator starts to go up, that it is possible to say that the trough is over.
As for the severity of the trough, it can also change from one to the other. It can be just a minor setback, and other times it can be a hard economical setback, which can lead to unemployment, low credit, and many businesses closing.
What is economic panic?
Economic panic, also called financial panic, is a sudden, widespread economic collapse. It is what happened during the crash of 1929, in which people start to believe that their money or investments are at risk and start to look for the institutions where they have money and/or investments to pull them out.
It can put the financial institutions in trouble since they may find it hard to pay up everyone at the same time. Which can cause many institutions to go bankrupt, which starts a domino effect the same way that The Great Depression did.
During these periods, there is a shortage of credit, people may be unable to pay the loans they already have, and many companies can go bankrupt. An economic panic usually follows a period of high speculation, it can be in stocks, like in The Great Depression, or real estate, as in the crisis of 2008.
What are the types of economic indicators?
An economic indicator is data in an economy that allows economists to tell what moment in the business cycle an economy is in. There are usually 4 data that are used as an economic indicator.
The Consumer Price Index (CPI) is a form of the economic indicator. This indicator measures how some consumer goods and services have changed prices over a determined time.
It is calculated by adding all the prices of services and goods and making an average of them. This will indicate the changes in the price of living. It is usually what assesses inflation.
Aside from that, another economic indicator is the GDP, which will show how much a country manages to gross over a determined period in all its economical transactions. It can also be measured by the unemployment rate and the price of crude oil.
What are the factors that are important to economic growth?
5 factors are important for economic growth. The first is human resources, which sets around how many and how good the workers of a country are. It depends on the creativity, skills, training, and education that people have.
The second factor that is important for economic growth is natural resources. It means what each country has in its nature, land, and beneath the land. It can be oil, gas, minerals, or metals.
The third factor is capital formation, which involves land, building, machinery, and a medium of communication. It is the ways you have that can improve your work. A country that has a good capital formation usually has a better per capita income and is more developed.
Aside from that, technological development talks about how each country cares for its scientific development and puts it in its production process. It helps in increasing productivity, making countries that have better technological development grow faster.
And finally, there are social and political factors. This means that the values, traditions, and beliefs of each country can impact how they will grow. The same is said about politics if the government works in improving the lives of people, and their finances.
What caused the 2007-2008 economic crisis?
The economic crisis that happened during 2007 and 2008 began because there was a lot of credit in the market. Which caused people to invest in real estate, creating a real estate bubble.
Once the bubble burst, many of the financial institutions were left with papers to many real estates that were worth nothing. It caused many homeowners to owe the bank a lot of money, sometimes even a lot more than what their houses were worth.
After it, the economy went through a great recession that caused many people to become unemployed, and even lose their savings. The economy just started to recover in the early 2009z
This article discussed what is the opposite of depression when considering the economic perspective. Aside from that, the article showed what depression means in economics, and how both of them impact the life of regular people.
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