Future Business Leaders of America (FBLA) Securities and Investments Practice Test

How is a depression typically recognized?

1. A decline lasting less than six months

2. A decline lasting at least six quarters

3. A decline with rising interest rates

4. A decline with increasing consumer confidence

The correct answer is: A decline lasting at least six quarters

A depression is typically recognized as a significant and prolonged downturn in economic activity that lasts for an extended period. Specifically, the criterion of lasting at least six quarters aligns with the commonly accepted definition, as it indicates a severe and lengthy contraction in the economy. This time frame signifies a more serious economic decline than a recession, which is often characterized by two consecutive quarters of negative growth. The prolonged duration helps differentiate a depression from other economic downturns, making 'at least six quarters' a key indicator. In contrast, a decline lasting less than six months would not be severe enough to meet the criteria for a depression. Rising interest rates or increasing consumer confidence would not characterize a depression; rather, they would indicate different economic conditions that could either mitigate or suggest recovery from an economic downturn.