First, let us differentiate the gross domestic product from the real domestic product. The gross domestic product or GDP is equal to consumption (C) plus investment (I) plus government spending (G)plus the difference between the exports (X) and imports (M). If we put it in a formula form, it will look this way:

GDP= C + I +G + (X-M)

In other words, the GDP is the total market value of all the final goods produced in a country in a specific year. It is called “gross” GDP because the depreciation of capital stocks are not subtracted from it. On the other hand, real GDP is the gross domestic product minus the inflation rate. Therefore, in the real GDP measure, it shows the value of all goods and services in base-year prices. A recession that would last for three years or more is referred to as economic depression. Depression is longer in time span, and has drastic effects than a recession. Some indicators of a repression is initial job losses, or increase in unemployment rate in three moths time. Stock market declines may also tell you that recession may be around the block. Real estate decline may also be an indicator for recession. But, it must be noted that this may not happen all the time. Real estate crisis may sometimes last longer than recessions.

A current example of a country experiencing recession is the United States of America. The bursting of the housing bubble and the subprime mortgage crisis contributed drastically to the current recession it is undergoing. What happened was, banks and other creditors lowered interest rates and allowed people who were not really capable of paying for a house, still acquire a house loan. Eventually, when the debtors where not able to meet their payment schedules, the companies had problems with finances and borrowed from other companies. This eventually together with many other causes led to recession and the fall of many established companies in the United States. Now, there had been closure of a number of factories which are US companies and retrenchment of employees have been experienced. This has led to a higher unemployment rate in the US and other countries which are dependent on the US.

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