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2008 Recession Policy Analysis

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Running head: Policies 1 Policies 5 Policies & The Recession John C. Halliday Macroeconomics Benjamin Davis? Policies & The Recession The economic meaning of a recession is two consecutive quarters of negative economic growth as measured by the U.S. GDP. This could be caused by a decrease in aggregate demand or in aggregate supply. In 2008, the United States economy first achieved no growth, and then entered a decrease in total output of goods and services causing a recession. During this time …show more content…

Money spent on public goods and infrastructure contributes to the total demand for output in a nation. Government spending leads to further increases in consumption and investment by firms. The government could also cut taxes, which would cause aggregate demand to shift to the right, increasing output and employment. In the Recession of 2008, the Fed provided cash to some central banks so that loans could be made to local banks with problems for lending purposes to consumers. But not all firms could get loans to buy materials and cover payrolls. As a result, production ground to a halt and workers were laid off. A well-functioning government would have tried to contain the growth in entitlement that led to a higher debt ceiling resulting from the …show more content…

If the Fed had not reacted as aggressively and as quickly as it did, the economy might be still shrinking today. Critics have accused the Fed of overstepping its mandate by implementing these monetary policies. They had lowered interest rates to nearly zero and engaged in ways to bring down long-term interest rates. Congress even established the Troubled Asset Relief Program (TARP), which injected much needed capital into banks. It helped restore stability to the economy and end the free fall of the housing market and auto market. TARP funding was used to mitigate housing foreclosures, and make the bankruptcies of General Motors and Chrysler relatively orderly. Without these monetary policies in affect, the Recession of 2008 was estimated to continue into 2011. I found the monetary policies were more financially important than the fiscal policies. (Blinder

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