Depression
Plain definition
A depression is an exceptionally severe and prolonged economic downturn — essentially a recession of extreme depth and duration, with very high unemployment, widespread business failures, and falling prices. Depressions can last years rather than months.
In economics
Depressions are rare: the archetype is the Great Depression (1929-1939), when U.S. unemployment reached about 25% and real GDP fell by roughly a third. Because no formal body dates depressions, the term is applied by historical consensus. Modern central banks and automatic stabilizers (like unemployment insurance) are largely designed to prevent recessions from becoming depressions.
Example
During the Great Depression, U.S. unemployment stayed above 14% for a full decade, thousands of banks failed, and deflation eroded debts and spending. Contrast this with the Great Recession of 2007-2009 — severe, but unemployment peaked near 10% and recovery began within two years — which is why historians do not call it a depression.
Depression vs recession is the key mix-up: a depression is not just a 'big recession' by some fixed threshold — there is no official dividing line. Economists distinguish them by severity and duration (years of double-digit unemployment vs months). Colloquial uses like 'the housing depression' inflate the term beyond its meaning.