Posted on September 25, 2009 by Nayab Naseer

An economic depression is a sustained and deep form of recession where economic activities slow down. As with recession, prople tend to purchase less, which in turn leads to lesser production and consequently wage stagnation and job losses. While government intervention in the form of spending and freeing money control usually ends a recession a depression is the chain reaction of economic downturn becoming more pronounced to the extent that the recession deepens instead of getting over.

An economic depression is characterized by wholesale job losses and thereby abnormal increase in unemployment, many bankruptcies, reduced volumes of trade and commerce and usually hyperinflation. Misallocation of capital is one of the major reasons for depression to set in.

The world has witnessed two major depressions till date, one that lasted between 1873 and 1896, and the second well known one between 1929 and 1933. The panic of 1837 that preceded these two depressions, formed on the basis of speculative real estate transactions and that brought a five year depression in its wake is the first instanc of depression in history.