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The Pros And Cons Of The Great Recession

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Demand-side Policies and the Great Recession of 2008
Korey R. Snowden
American Military University
ECON102 I003 Sum 17

Abstract A recession is a drastic change in economic growth. The Recession of 2008 was the worst recession the Unites states has seen since WWII. Our economy took a drastic turn for the worst and influenced the lives of many for the worst. Not only did it effect the people and our economy but it effected our government as well. However when our economy takes a turn for the worst, there is ways in order to turn it around. These are called Fiscal policies and monetary policies. Fiscal policies improve the growth of our economy by decreasing unemployment and increasing the amount of spending in our economy. Monetary policies are set in place to manage inflation. Even though the recession was a low point for our economy, the plans that were set in place helped the U.S. get back on its feet and continue to be the great country that it is today.

1. Introduction: What is the economic meaning of a recession?
The economic meaning of a recession is defined as “a period of general economic decline and is typically accompanied by a drop in the stock market, …show more content…

They can do this by selling government bonds or trading bonds, changing the amount of money in the bank vaults, and changing interest rates. There are two types of Monetary Policy which are expansionary and contractionary. Expansionary will ultimately increase money to decrease unemployment. This boosts the private sector of business and increase spending of the people. Contractionary is put in place to slow inflation within the economy. They do this by slowing the rate of growth in the money supply. This method can be bad because it can lead to a recession but the outcome will result in the stoppage of inflation within the

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During the 2008-2009 recession, the nation experienced its economy downturn. The United States government jump-start the economy using spending policies. The government has the power to lower or increase taxes and can spend by purchases to promote the level of production output to stabilize the economy. The government stepped in and intervened using fiscal policy, a method known as Keynesian economics. The fiscal policy allows the government to adjust spending level, and tax rate.

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The Monetary Policy is made by the Federal Open Market Committee (FOMC). The members of FOMC are the Board of Governors and 5 presidents of the district reserve bank. In order for FOMC to keep the interest and employment rates it has to do a few things. When money needs to be saved they will use a “tight money” policy. In this policy they will Increase discount rates, Sell government securities, make announcements of tight money, and increase the Reserve Requirements.

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The latest recession in America was the recession that took place from 2007 to 2009. The “Great Recession” as its known, was caused by multiple economic problems, the biggest of which was the bursting of the housing bubble in 2007. The government responded to these economic problems by printing

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Expansionary Polices; Monetary and Fiscal Expansionary economic policy seeks out to expand the money supply to boost economic growth. This policy also comes from central banks, which focus on increasing the money supply in the economy. In fiscal term, a decline is defined as an overall slowdown in economic activity, and in an attempt to move the economy out of a recession, the government would implement expansionary economic policies. The Great depression challenged the classical model with the reality of a long depression and high unemployment rates. Keynes attacked the classical model in two important ways, first the acknowledgment of error in the model and secondly by offering a different, well developed model

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One way to do so is to buy securities. In effect, when the Fed buys securities from banks or other intermediaries, the market money supply increases, which, in turn, puts downward pressure on interest rates allowing more fluidity into the economy as making loans becomes less costly. When the economy in is such a state ( lower interest rates), credit becomes less costly and more attractive. Hence, as predicted by the supply and demand principle, the increase in the money supply necessarily drives the price of money ( its interest rate) down inducing more borrowings and investment to take place to ultimately and positively impact the economy (Ibid. n. d.).

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On the other hand, QE can neglect to goad request if banks stay hesitant to loan cash to organizations and families. That being said, QE can in any case straightforwardness the methodology of deleveraging as it brings down yields. Notwithstanding, there is a period slack between money related development and swelling; inflationary weights connected with cash development from QE could manufacture before the national bank acts to counter them. Inflationary dangers are relieved if the framework's economy exceeds the pace of the expand of the cash supply from the moving. On the off chance that creation in an economy builds on account of the expanded cash supply, the estimation of a unit of money may additionally expand, despite the fact that there is more coin accessible.

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He also argued that using monetary policies such as cutting interest rates in a severe recession would also have no effect, as people were more likely to save their money rather than spend it. In Keynes opinion, the government should intervene and boost the economy through the use of expansionary fiscal policies otherwise the economy would remain in a recession. He argued that increasing aggregate demand would help bring the economy out of recession. By the government injecting capital into the economy this would set off a chain reaction.

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