Depression and recession

Depression — in economics, a long period of decline in the business cycle that is characterized by sharply reduced industrial production, widespread unemployment, serious declines or cessations of growth in construction activity, and great reductions in international trade and capital movements. Unlike minor business contractions that may occur in one country independently of business cycles in other countries, severe depressions have usually been nearly worldwide in scope. The Great Depression beginning in 1929, for example, was the most severe and widespread economic decline in the 20th century. Recession — in economics, a downward trend in the business cycle characterized by a decline in production and employment, which in turn causes the incomes and spending of households to decline. Even though not all households and businesses experience actual declines in income, their expectations about the future become less certain during a recession and cause them to delay making large purchases or investments. In recessions, the decline in output can be traced to a reduction in purchases of durable household goods by consumers and of machinery and equipment by businesses, and a reduction in additions of goods to inventories. The greatest effect is probably on inventories; businessmen stop adding to their inventories and become more willing to draw on them to fill production orders. The decline in inventories thus has a double impact on production volume. Whether a recession develops into a severe and prolonged depression depends on a number of circumstances. Among them are the extent and conditions of credit extended during the previous period of prosperity, the amount of speculation permitted, the ability of government monetary and fiscal policies to reverse the downward trend, and the amount of excess productive capacity in existence.

■ Ex. 2. Answer the following comprehension questions, based on the text.

1) What does the term “panic” imply?

2) Has a financial panic been a prelude to crisis?

3) What were the peculiarities of the panic in the USA in 1857?

4) What is depression in terms of economics?

5) What are the main differences between depression and recession?

6) Why is production volume badly affected in recessions?

7) Can you enumerate certain conditions of a recession developing into depression?

8) Is it possible for the government to reverse the downward trend?

■ Ex. 3. Say whether the following statements are TRUE or FALSE?

1) The Great Depression beginning in 1929 didn’t have any worldwide consequences.

2) Depression usually leads to unemployment and reductions in international trade.

3) Until the 19^th century, economic fluctuations were mainly connected with shortages of goods.

4) The panic of 1857 in the USA was connected with collapse of the NYSE.

5) A financial panic has quite often been a prelude to a crisis.

6) Severe depressions have always been nearly worldwide in xope.

7) Declines in income always lead to reduction in additions of goods to inventories.

8) The amount of excess productive capacity in existence can stop the recession.

■ Ex. 4. Put the following sentences in the right order:

1) The greatest panic was the crisis in 1929, which brought about the Great Depression.

2) Until the 19th century economic fluctuation were connected with market expansion.

3) Panic is acute financial disturbance, such as widespread bank failures.

4) Recession is a downward trend in the business cycle characterized by a decline in production and employment.

5) Whether a recession develops into a prolonged depression depends on a number of circumstances.

6) The decline in inventories has double impact on production volume.

7) The panic of 1857 in the U.S. was the outcome of the railroads’ defaulting on their bond.

■ Ex. 5. Write an outline of the text and render it in the form of a presentation. Structure your presentation according to the classical model.

SECTION В

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