An economic depression is a severe downturn in the economy, even more severe than a recession, which is defined as two quarters of negative growth in GDP (gross domestic product). Although there was only one Great Depression after the collapse of the stock market in 1929, economic depressions are still a possibility. Following are some likely causes of an economic depression.

Identification

Though there is no concise definition of an economic depression, it usually occurs when the gross domestic product (GDP), the total dollars spent on goods and services in the United States, falls by 10 percent or more. This severe economic downturn is usually precipitated by a decrease in consumer spending.

Significance

An economic depression can start with bank failures. Banks that lose money on risky investments will have less money available for business expansion. This can lead to corporate bankruptcies, failures and ultimately employee layoffs.

Effects

Bank failures can be felt worldwide because of international investments and currency. The effects of corporate bankruptcies and failures can send stock market prices spiraling, which causes people to lose wealth.

Causes

A decrease in the value of the dollar, high unemployment rates, inflation, a downturn in home purchasing, high oil prices and high inflation are other variables that lead to an economic depression.

Time Frame

An economic depression is a downturn that generally lasts three years or longer. The depression will usually not end until GDP starts to grow again, which will be spurred by consumer spending as companies start hiring again and unemployment drops.

Source:

Skeptically.org: Economic Depression, five likely causes

Mark Swatson: The Coming Economic Depression

Differencebetween.net: Difference Between Recession and Depression

More Information:

The Atlantic: When Does A Depression or a Recession End/