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Difference between the Great Recession and the Great Depression
When one's financial situation worsens, it impacts many areas of life. High unemployment rates, falling investment levels, reduced economic activity, and falling wages are only some of the indications of an economy in decline. Past incidents of economic upheaval have far-reaching effects throughout the globe.
As shown during the Great Recession and the Great Depression, a prolonged slowing in economic development can play a role in the emergence of a recession or depression in the global economy. These two terms have a lot in common, including the fact that they both describe a decline in the economy's performance, but there are also significant differences.
What is Great Recession?
The global economy saw a sharp decline in the later part of the 2000s and the early 2010s. Although the timing and depth of the recession varied from country to country, the International Monetary Fund nonetheless assessed it as the second-worst economic downturn in history.
The Great Recession was triggered by the bursting of the housing bubble in 2005 in the United States. The fall in property values allowed many homeowners to get back up to speed on their mortgage payments. This caused a severe drop in the price of mortgage-backed securities in 2007 and 2008, which in turn caused the collapse of several financial institutions. This resulted in less money being spent and borrowed.
Developed nations like those in South America, North America, and Europe were among those that were affected the hardest by the Great Recession, although not everybody felt its consequences in the same manner. The economies of less developed countries like India, China, and Poland were less hit by the crisis and actually grew during this time. Increases in unemployment decreased international trade, and higher commodity prices were all experienced by the affected countries.
In response to the Great Depression, the Federal Reserve enacted monetary policies in the United States. These included lowering interest rates to near zero and increasing liquidity. The hope was that by implementing these measures, economic development would be sped up. After the Great Depression ended, this was cited as a reason for the recovery that followed.
What is Great Depression?
The Great Depression began as an abrupt slowing of economic activity in the 1930s. The United States of America served as a catalyst for the Great Depression, which then soon spread over the world. It was the worst case of depression ever recorded, lasting for an unprecedentedly extended period of time. This global economic crisis had its origins in the dramatic fall in stock prices that began in 1929 and swiftly spread throughout the world. It took some countries anything from six months to a year to recover, but others were able to do so well before World War II broke out.
Due to widespread panic selling when stock prices dropped, the money supply shrank in most countries. After then, the asset prices fell, bringing the company's net worth down. As trust in the economy dwindled, people began hoarding their savings. After everything was said and done, this resulted in a rise in interest rates while creating a fall in nominal interest rates. Profit declines, increases in unemployment and poverty, declines in personal income, and the shutdown of vital industries like construction were the most notable results.
Differences − The Great Recession and the Great Depression
The following table highlights how the Great Recession was different from the Great Depression −
|Characteristics||Great Recession||Great Depression|
The dramatic decline in global economic activity that happened between late 2000 and early 2010 is known as the "Great Recession."
During the 1930s, the United States underwent a severe economic downturn known as "The Great Depression."
The Great Recession impacted the latter half of the 2000s and the beginning of 2010.
The Great Depression had a significant impact on the 1930s.
The bursting of the U.S. housing bubble in 2005 was the triggering factor that led to the Great Recession. This was the result of a decrease in property prices, which benefited homeowners by allowing them to catch up on their mortgage payments.
In 2007 and 2008, the value of mortgage-backed securities plummeted as a direct result of this, leading to the downfall of several financial institutions. Both consumption and borrowing decreased as a result.
1929's precipitous decrease in stock prices was a major cause of the Great Depression, which soon swept over the world when the stock market underwent a devastating crash.
The significant drop in global economic activity that happened between late 2000 and early 2010 is known as the "Great Recession." The collapse of the U.S. housing bubble in 2005 was ultimately responsible for this catastrophe. This was the result of a decrease in property prices, which benefited homeowners by allowing them to catch up on their mortgage payments. In 2007 and 2008, the value of mortgage-backed securities plummeted as a direct result of this, leading to the downfall of a number of financial institutions. Both consumption and borrowing decreased as a result.
In contrast, the term "Great Depression" refers to a severe economic downturn that spanned the 1930s. Throughout the 1930s, this deterioration happened. 1929's rapid decline in stock prices was the main cause of this global economic catastrophe, which soon spread once the stock market crashed. These two reasons contributed to economic instability.
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