The public is, often, bombarded with, a variety of economic terms, which, often, instead of helping the untrained, better understand, merely confuses them. How often have we heard, terms, such as, recession, depression, inflation, stagnation, etc, but, many, have only a limited understanding, of what that means? As, a former, licensed, representative, and principal, for a financial services company, I have learned, and developed, an understanding, and appreciation, for what these mean, and their potential impacts. Often, I try to make others, feel more comfortable, by joking, that the difference, between, a recession and a depression, is, it’s the former, when it happens, to you, but, the latter, when I am affected! With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, these four concepts/ principles, and what they mean, and represent.
1. Recession: A recession is, generally, defined, as a period, of temporary economic/ financial decline, when, trade, industrial activities, and other economic indicators, are identified, in, at least, two consecutive quarters. It is usually reviewed, in terms of, the Gross Domestic Product, or, GDP, which measures, overall economic performance, in a specific nation. Often, the Federal Reserve Bank, uses several tools/ methods, to attempt to enhance activity, including reducing interest rates, etc.
2. Depression: When, the recession, becomes, even more severe, and endures, for a significantly, extended period of time, it is often, considered, a depression. We might witness, either, a specific component of the economy, which is depressed, such as housing, or industry – specific, or, an overall one. Nearly, everyone, is familiar, with the period, which began in 1929, and extended, for several years, which is referred to, as, the Great Depression.
3. Inflation: Inflation is the rate at which, a specific (or several) currency, falls, and, results, in an overall, rise in most prices of products, and services. The usual pattern, of the Federal Reserve Bank, is, to increase the costs, of borrowing money, also referred to, as interest rates. In most cases, when these increase, significantly, many individuals discover, their wages, do not keep up, with the inflation rate!
4. Stagnation: When we refer to, stagnation, in economic/ financial terms, it refers to a significant period of little, or lack of activity, growth, and/ or, meaningful development! When, this occurs, for a prolonged period of time, it generally, creates a loss of employment possibilities, and, often, more unemployment. Historically, governments use a variety of economic stimuli, to strengthen, overall economic activity, and hopefully, restore us, to a stronger, better, financial condition.