Recessions, Depressions and Economic Fluctuations

The event that created modern macroeconomics was called "the Great Depression," but the general term for decreasing national production, in modern economics, is a recession.

Recession: A recession is defined as a period of two or more successive quarters of decreasing production. Production is measured by a number of variables. Real Gross Domestic Product is one important measure. We will focus mainly on it.

The Great Depression was a period of about 10 years, 1929-1940, dominated by two recessions. The first of those recessions was of unparalleled depth, and that was what caused people to refer to it as a depression and as "The Great Depression." There is no general definition of a depression, however, and until recently the decline of 1929-1940 was the only decline refered to as a "depression."

Here is a diagram that shows something of the decline in production in the Great Depression.

Figure 1 -- Production in the Great Depression

The green line in Figure 1 is Gross National Product in dollars of 1929 purchasing power. We see that from 1929 to 1933 it dropped steadily, by about 30%, losing everything it had gained during the '20's. We see other recessions in 1937-39 and 1948-49.

Rate of Change of Production