1. Introduction

What is a crisis? A crisis is a concept that in general terms refers to a situation of disturbance, and in economics it is no different. Economic crises are those moments in which, for a wide variety of reasons, the economic variables destabilize. 

The most common indicators of a crisis are the imbalances that manifest in increasing levels of unemployment, inflation, business inactivity, poverty, etc. In this sense, crises may occur as a natural moment in the economic cycle, or they may be the consequence of specific shocks, most commonly in recent decades as a product of globalised economic dynamics. 

What is the difference between a crisis and a recession? 

The capitalist dynamic has been qualified as the cyclical process of fluctuations of diverse signals of different magnitudes. It is normal to find phases of expansion and accelerated growth following phases of depression and stagnation, as shown in Figure 1.

An economic cycle is that period of time in which expansion of the economy (GDP growth) is followed by a crisis in the rate of accumulation which then becomes a recession, which bottoms out at a given moment reaching the trough or depression, from which economic expansion begins again.1

A recession is the phase of slowdown in economic activity in which consumption is reduced, leading to a decline in production, real income and employment. This recessionary phase can be more or less extended in time, but is generally considered to be of shorter duration than the depression. 

While the graph shows that the crisis is a disruption that changes the trend of the expansionary phase as commonly explained in textbooks, in our daily understanding, the crisis is often associated with the depression phase. 

The depression is the moment when the recession bottoms out or in other words when the recession is sustained over time and becomes more severe. What follows a trough is necessarily an upturn phase where the economic variables start to recover. In these situations, when the imbalances come to produce a crisis in an economy, it is necessary to try to reverse the situation to regain the equilibrium. Precisely, the chosen strategy and beneficiaries of that recovery depend on political economical decisions, and these aspects are the ones we will try to illustrate in this dossier.

How to do it in the best way is the question that economists and policymakers ask themselves, and, as it is easy to imagine, the formulas for action do not always agree. Each school of economic theory formulates different behavioural hypotheses, and different conclusions and practical recommendations. To understand the different positions, the two models of general reference in economics are posed, mainly the Neoclassical school on the one hand and the Keynesian analysis on the other, and the different propositions that each one of them follows.

1  It is important to emphasize that the idea of economic crisis as a phase of a cycle is one of the ways to approach its concept, but not the only one. In general, the concept of crisis is framed within various thematic blocks linked to growth and economic cycles, macroeconomics, current crises and/or public sector intervention.