Definition of Depression

An economic condition that is characterized by a protracted decline in economic output and a rising level of unemployment.

Applying "Depression" to Securities Exams:

A depression is characterized by a protracted decline in GDP, high unemployment, deflation and a reduction in credit. Banks will reduce the amount of credit that they extend to their customers in an effort to protect their balance sheet by reducing the amount of risk that the bank takes on in the form of loans.

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