Demand-side Policies and the Great Recession of 2008 Economics Essay
Macroeconomic analysis deals with the crucial issue of government involvement in the operation of "free market economy." The Keynesian model suggests that it is the responsibility of the government to help to stabilize the economy. Stabilization policies (demand-side and supply-side policies) are undertaken by the federal government to counteract business cycle fluctuations and prevent high rates of unemployment and inflation. Demand side policies are government attempts to alter aggregate demand (AD) through using fiscal (cutting taxes and increasing government spending) or monetary policy (reducing interest rates). To shift the AD to the right, the government has to increase the government spending (the G-component of AD) causing consumer expenditures (the C-component of AD) to increase. Alternatively the Federal Reserve could cut interest rates reducing the cost of borrowing thereby encouraging consumer spending and investment borrowing. Both policies will lead to an increase in AD.
Develop an essay discussing the fiscal and the monetary policies adopted and implemented by the federal during the Great Recession and their impacts on the U.S. economy.Complete this essay in a Microsoft Word document, and in APA format. Note your submission will automatically be submitted through "TurnItIn" for plagiarism review. Please note that a minimum of 700 words for your essay is required.
1. Cover page with a running head
2. Introduction: What is the economic meaning of a recession?
· A brief discussion of fiscal policies
· A brief discussion of monetary policies
3. Conclusions: Discuss the extent to which the use of demand side policies (fiscal policy and monetary policy) during the Great Recession of 2008 has been successful in restoring economic growth and reducing unemployment
4. References
Demand-Side Policies and The Great Recession of 2008
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Demand-Side Policies And The Great Recession Of 2008
Love and Keeley (2010) define a recession as a period in which the economy grows at a reducing rate or even experiences negative growth experienced over a certain period such as six months within a fiscal year. The economic recession is usually marked by certain economic indicators such as increased employment rates, collapsing business, falling house prices, a reduction in long-term investments among other indicators. Following the 2008 great recession, governments globally adopted various economic measures aimed at stabilizing the economy. Likewise, the US federal government adopted and implemented multiple fiscal and monetary policies during the Great Recession to avert the crisis.
The great recession also contributed to increased financial crisis globally that increased the uncertainty about the future economic prospect. The 2008/9 global recession resulted into a monumental “loss of national output (GDP), a large increase in national unemployment, and a deflationary scare in many other countries across the world (Carvalho, Eusepi, and Grisse, 2012). The global credit emergency had been looming before the 2008 recession. The collapse and liquidation of Lehman Brothers in September 2008 escalated the financial crisis calling for stringent measures to control the crisis (Carvalho, Eusepi, and Grisse, 2012). In the United States alone, more than 7.5 million jobs had been lost thanks to the Great recession doubling the unemployment levels in the US. Additionally, an estimated $16 trillion in total assets were lost by American holds as a result of the collapsing money markets (Grusky, Western & Wimer, 2011). The severity of the financial crisis demanded adoption of aggressive economic measures such as the expansion of the federal bank balance sheets as well as the expansionary fiscal measures.
Federal and central banks world over embraced unprecedented stringent measures and implemented policies aiming at resolving looming global depression. Some of these measures were blamed for the delay in the economic recovery process with other policies causing more global economic harm. For instance, multiple central banks were in the record for introducing new credit facilities aimed at providing sufficient credit to the financial sector (Carvalho, Eusepi, and Grisse, 2012). Below are some of the policies adopted to curb the recession crisis:
Fiscal Policies
Fiscal policies are policies that involve shifting government spending and taxation with the aim of impacting the economy. The US government unveiled various fiscal stimulus packages that included a mix of both increased government spending and tax cuts. These measures were taken to stabilize the country’s economic a...