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Depression vs. Recession
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The Economy as Hole-in-the-Road
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In this picture of a hole in an up-hill road, the various components relate to the economy as follows:
| Hill | | Long-Term Economic Trend
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| Road | | Actual Economic Performance
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| Hole | | Depression
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| Into | | Recession
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| Out | | Recovery |
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The driver experiences this hole in the context of going uphill -- that is, in a growth-trend frame of reference. There will be a nast bump, even though the entire inside of the hole is sloping uphill -- this hole won't even hold water. If the not-sufficiently-uphill slope were to continue for any distance, the hole would get dangerously deep.
When viewing the economy in the same growth-trend frame of reference, any drop of actual performance below the long-term trend constitutes a recession -- even if the growth rate is above zero (i.e., uphill). A depression is the hole which results from having gone into a recession. It can get quite serious even if an actual contraction (downhill slope) doesn't occur.