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According to the business cycle, what characteristic indicates that a depression has been reached?

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Final answer:

A depression in the business cycle is indicated by an especially lengthy and deep recession, characterized by a significant and prolonged drop in real GDP, severe unemployment, and extended economic hardship.

Step-by-step explanation:

According to the business cycle, the characteristic that indicates a depression has been reached is an especially lengthy and deep recession. While a recession is defined by a significant decline in real GDP and it typically begins after the economy reaches a peak of activity and ends at the trough, a depression represents a more severe scenario. The Great Depression of the 1930s and the recent downturn during the COVID-19 pandemic in 2020 exemplify such profound economic declines. During a depression, the economic output, measured as GDP, severely drops, unemployment increases dramatically, and the adverse effects are felt over a long period.

A recession typically involves real GDP decreasing for at least 6 consecutive months. However, when this contraction is exceptionally prolonged and involves a steeper fall in economic activity, we experience what is known as a depression. Pointing to historical examples, such as the Great Depression and the Great Recession of 2008-2009, helps in understanding this concept. Figures illustrating the U.S. real GDP over time, such as Figure 19.10, can offer a visual representation of these economic downturns, showing the generally upward trajectory of long-term GDP growth interrupted by short-term declines.

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