The first post-war most prolonged recession occurred in December of 2007 and came to an end only in June of 2009 and received the name of the Great Recession. Apart from its continuance, the Great Recession was ponderous in many aspects. The global crisis led all the financial markets and banking institutions to complete devastation, causing increasing in household prices and therefore making people lose their money and homes.
specifically for you
for only $16.05 $11/page
Even though it greatly affected the whole globe, the United States and Western Europe suffered the most. To avoid the remission of such a downturn, the regulatory policies and models that would allow the banks to finance short-term liabilities by long-term assets should be created. The purpose of this paper is to analyze the Great Recession and the economic evidence and explore how the crisis’s reasons affected the data suggested.
First and foremost, the crisis affected a lot of economic factors. The Great Recession was the matter for the real gross domestic product to fall 4.3 percent until the dissolution of the crisis (“Real gross domestic product,” 2020). The natural unemployment rate was around 4.5 at the time of crisis and incorporated factors that boosted the rapid growth of unemployment (“Natural rate of unemployment,” 2020). Therefore, the unemployment rate increased from 5 percent to 9.5 percent in June of 2009 and reached its pitch in October of the same year at 10 percent (“Unemployment rate,” 2020). The data is associated directly with the business cycle as well, as they were seriously in debt so that the government had to buy assets to sustain them.
The data presented above show the crisis deepening, so the measures were taken to prevent occurring more devastating circumstances. Initially, the Federal Reserve applied traditional monetary policies to solve the issue. These policies were considered aggressive but credible and effective despite the criticism. The Fed was lowering federal funds from 5.25 percent in 2007 to 0-0.25 percent a year later (“Effective federal funds rate,” 2020).
This remarkable reduction signified the decline of the economic outlook and risk of the downfall of both deflation and inflation, and output. “With the federal funds rate at its effective lower bound by December 2008, the FOMC began to use its policy statement to provide forward guidance for the federal funds rate” (“The great recession,” 2013, para.5). The statement implied the guidance program according to which the monetary stimulus should have been provided by lowering real interest rates and the structure of interest rates. This policy is directed toward the present and future establishment of fund rates.
The Federal Reserve also suggested using nontraditional policies apart from the traditional ones. Among such policies were easing credits to alleviate credit flows and shrinking the cost of loans, and the introduction of large-scale asset purchase programs (“The great recession,” 2013). This program was held to lower borrowing rates to enable liquidity because the fund rates were equal to almost zero. The assets were aimed at decreasing the cost and availability of credits for acquiring households. Assets’ purchases helped the housing market that was a cornerstone of the crisis, and they also widened financial conditions. However, there were also some disadvantages concerning the interest rate that was so low that they could not be reduced anymore and affected the stabilization of the macroeconomic system.
The U.S. aimed at establishing economic growth not only within the country but on the global level. Alongside aggressive monetary policy, the U.S. Federal government decided to involve the fiscal policy first to cut taxes with the help of different governmental spending. According to the source, “These programs included the Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009” (“The great recession,” 2013, para.3). The last act was supposed to cover both rebates and banking investments so that the customer price index increased (“Consumer price index for all urban consumers: all items in U.S. City average,” 2020).
100% original paper
on any topic
done in as little as
Later, American president George W. Bush consented to issue the Stimulus Act in February of 2008. The act allowed the taxpayers to use rebates for spending, reduced taxes, and enhanced limitations for home loan programs to promote home sales and boost the economy. The Stimulus Package was also a financial motivation concerning capital investment for businesses. However, the intervention of individual banks affected negative results. Such interventions caused a decline in federal deficit up to 1.4$ million (“Federal surplus or deficit,” 2020). Besides the deficit, the federal debt increased up to 82$ million (“Federal debt: total public debt as a percent of gross domestic,” 2020). Thus, fiscal policy implied the economic boost but did not consider the outcomes.
Despite that the Great Recession was finally over in the United States in 2009, the downturn’s consequences were still present in many other countries within the following years. Summarizing all the policies, the steps such as imposing lowered taxes, promoting home sales at the low-interest rate, and stimulating the economy, were adopted by the government. Moreover, the government accepted assets programs that help to sustain the business by purchasing their assets. All mentioned actions more or less stabilized the housing market, and it is believed that such a crisis would never occur, even though the process of recovery is not over yet.
Effective federal funds rate. (2020). Web.
Federal surplus or deficit. (2020). Web.
Natural rate of unemployment. (2020). Web.
Real gross domestic product. (2020). Web.
The great recession. (2013). Web.
Unemployment rate. (2020). Web.