Economic depression refers to a severe and prolonged downturn in economic activity characterized by a significant decline in gross domestic product (GDP), widespread unemployment, a decrease in consumer spending and investment, and various other negative economic indicators. Depressions are more severe and prolonged than recessions, and they often have widespread and lasting impacts on the economy.

Key characteristics of an economic depression include:

1. **Sharp Contraction in GDP:**
– During a depression, the economy experiences a substantial and sustained contraction in GDP. This means that the overall production of goods and services in the country significantly decreases.

2. **High Unemployment:**
– Unemployment rates tend to rise sharply during a depression as businesses cut back on production, leading to layoffs and job losses. High unemployment contributes to reduced consumer spending, creating a negative feedback loop.

3. **Bank Failures and Financial Distress:**
– Economic depressions often witness a wave of bank failures and financial instability. This can be triggered by a combination of factors, including a collapse in asset prices, high levels of debt, and a lack of confidence in the financial system.

4. **Decline in Consumer Spending and Investment:**
– Consumers and businesses become cautious during a depression, leading to a significant decline in consumer spending and investment. This decline in demand exacerbates the economic downturn.

5. **Deflationary Pressures:**
– Depressions are often accompanied by deflation, where prices of goods and services decline. Deflation can lead to a downward spiral as consumers delay purchases in anticipation of lower prices, further reducing demand.

6. **Global Impact:**
– Economic depressions can have global repercussions, affecting trade, investment, and financial markets worldwide. International economic interdependence means that a severe downturn in one country can have ripple effects globally.

7. **Government Intervention:**
– Governments typically respond to economic depressions with interventionist policies, such as fiscal stimulus packages, monetary policy adjustments, and financial sector bailouts, in an effort to stabilize the economy and restore confidence.

Notable examples of economic depressions include the Great Depression of the 1930s, which had a profound impact on economies around the world, and the more recent Global Financial Crisis of 2008-2009, which led to a severe economic downturn in many countries.

It’s important to note that the term “depression” is not always used precisely, and its definition may vary. In common economic discourse, the term “recession” is often used to describe severe economic downturns as well. The severity and duration of economic contractions can vary, and economists may use different criteria to characterize and label these downturns.