Ten years ago, a housing bubble bust in the United States housing market sparking one of the worst economic recession since the Great Depression. Unlike the Great Depression, there are policy actions today that can be used to stabilize the economy: fiscal and monetary policy. I will be disusing the fiscal and monetary policy responses by the United State Government, and the Federal Reserve Bank, and how and why these were the responses to the United States economy. The Fed Reserve Bank (the Fed) typical monetary policy response work with open market operations, however, during the recession, the Fed used the unconventional policy of quantitive easing to push down interest rates close to zero, by increasing the money supply. The Fed response …show more content…
The Fed had the ability to simply stimulate the economy, while the government has the ability to stabilize and stimulate the economy. The government worked to keep the economy stable through two different bailouts: one of AIG and the auto industry. The bailout of AIG was to keep the financial market stable. For the fact that AIG held credit swaps which held subprime mortgages. This is meant that as the housing market crashed and subprime mortgages defaulted on AIG had to pay. The credit swaps were the assets that had now turned into liabilities that the company had to pay. However, it did not have the money to cover its lability. The government bailout out it for the fact that AIG was the largest insurance company and it was tied to other financial institutions. It would have sent the finical investment market crashing as other banks went understand. Similar to the Great …show more content…
This was a package the increase government spending in the area like infrastructure, education, health and renewable energy. This was a Keynesian economic theory approach to with a recession. Keynesian economic works that during a recession that as there is a decrease in private spending the government must spend more to complicated for this decrease in spending. It was through the government spending that word stimulates the economy and keep from falling future into a recession. The other part of this was the government cut taxes, in the hope that it would create consumer spending. The government worked with a two-part plan. Part one was to stabilize the economy through bailout and the other was the allowed to the economy to expand out of the