Economics Research Paper Example | Topics and Well Written Essays - 1000 words - 1

Economics - Research Paper Example What is critical however is the assumption that governments, in this type of situation, tend to adapt expansionary macroeconomic policies in order to stimulate growth and increase in employment level. Depression however, is an entirely different aspect of business cycle as it indicates more depressed levels of economic activity. (Krugman and Wells) The current economic situation is quite alarming due to the fact that despite the extensive support from the government, economy is not recovering. The discussion on the double dip recession is heating as many economists feel that US economy specifically may face the double dip recession if timely corrective measures are not taken. (Elliott). This situation is therefore turning out to be the same situation which America experienced during 1930s as same macroeconomic indicators were not showing satisfactory performance at that time also. This paper will therefore attempt to argue that currently America is going through a depression and not the recession as macroeconomic variables are showing same signs as they were during the depression of 1930s. There are key differences between recession and depression as both indicate the degree of severity faced by the economy. Recession is often characterized by the decline in the gross domestic product (GDP) of the country by more than a quarter. This decline is often limited to less than 10% decline in GDP of the country. Recession is also characterized by the decline in the industrial production as well as the real income. Whereas depression is considered as an economic situation where the overall economy shrink by more than 10% over the period of one year in any given period. Thus the difference between the two is really dependent upon the length of time the economy experience a continuous decline in the key economic variables. Depression therefore indicates a more grave situation