Recession

The Successfulness of the U.S. Economic Policies during the 2008 Recession
[Student’s Full Name]
[Institution]
Introduction
“One of the most widely recognized indicators of a recession is higher unemployment rates. In December 2007, the national unemployment rate was 5.0 percent, and it had been at or below that rate for the previous 30 months. At the end of the recession, in June 2009, it was 9.5 percent.” (BLS, 2012). This steep decline in the country’s employment rate, along with the declining GDP created a recipe for a disaster. A disaster that the press and economist all over the world had called “The 2008 Recession.”
However, it is important to note that this recession is not a one of a kind event. On the contrary, the country had experienced recession before. Economist Milton Friedman noted as far back as 1964 that in the American historical record “A large contraction in output tends to be followed on the average by a large business expansion; a mild contraction, by a mild expansion.” (Friedman 1969). This means that in American history some recessions and contractions in the economy are to be expected.
For instance, before 2008 recession, the latest economic shrinkage in the country happened from September 1982 to June 1983 where “unemployment rates peaked at 10.8 percent.” (BLS, 2012) Concerning GDP, according to the Bureau of Economic Analysis (2009), after seeing an increase of 1.3 percent in 2007; the country’s GDP decreased at an annual rate of 3.8 percent in 2008 (BEA, 2009).

This essay shall address the policies taken by the United States government to stop the economic recession the country suffered in 2008. Also, it intends to analyze the usefulness and success rate of said policies using the Phillips curve.
Discussion
Variables Description
GDP during 2008
As stated in the introduction, during 2008 and 2009 the country suffered an economic downturn. According to the BEA (2009), the fourth quarter of 2008 saw the largest decrease in DGP since the first quarter of 1982. However, when looking at the available data, it is possible to see a trend that triggered the recession. For instance, during 2007 and 2008 Americans experienced a downturn in exports, and in a decrease of 8.8 in the country’s disposable personal income.
Also, the decrease seen during the third quarter slowed slightly during the fourth. However, the consumer power for spending durable goods was the largest since 1987 (BEA, 2009). In the same way, the residential investment decrease of 23.5 percent was all recipes for recession.
Unemployment Rates
According to the Bureau of Labor Statistics (2012), the states of North Dakota; Nebraska, and South Dakota had the lowest unemployment rates (5.2 percent) among the 50 states. On the other hand, Nevada; California and Michigan had above 10 percent of unemployment rates. Also, when compared to the rest of other industrialized countries, the U.S. unemployment rates during 2008 were among the highest of all industrialized countries (BLS, 2012). (Fig. 1)

Fig. 1 (Source: BLS, 2012)
Deflation
Most economic recessions lead to speculation. This drives up the prices of the goods and assets within the country that leverage debts to unsustainable levels (Hetzel, 2009). That way, speculation requires correction from the central government and banking system. This correction implies a period of deflation to eliminate prior speculation. Also, for many businesses and owns, deflation meant a problem because they needed to cut prices to boost sales, which did not make up for the loss of money and assets. These cycles of economic contractions that lead to recession and then to depressions “result in a cycle of monetary contraction, deflation, expected deflation.” (Hetzel, 2009)
Analysis of the Policies Taken
TARP Policy
“The U.S. government’s response to the financial crisis and ensuing Great Recession included some of the most aggressive fiscal and monetary policies in history (Blinder & Zandi, 2010). The Troubled Asset Relief Program (TARP), were a series of policies aimed to give the Treasury a purchasing power of $700 billion to buy illiquid backed securities to restore liquidity to the market.
This stimulus that equaled 7% of the GDP resulted in an inclusion of the fiscal stimulus. In the first two years of the recession, $500 billion had been spent. However, it is important to note that the economic growth has been steady, and the country started to completely recover in late 2010. However, although TARP addressed the economic problems, it failed to address the issue of unemployment (Blinder & Zandi, 2010).
Phillips Curve
Although many economists do not use the original form of Phillips curve, it can be helpful to analyze the relationship between unemployment and inflation in 2008 recession. The curve shows that unemployment rates increased while inflation fell. (Fig 2). However, it is important to note that unemployment did not spike 2008’s recession, but it was the opposite. The perceived deflation of the American economy made producing less rentable than it was. That caused unemployment, and the lack of goods, along with the problems in the consumers’ purchase power, bolstered inflation.

Fig. 2 Source: (Federal Reserve Bank, 2015)
Conclusion
The Successfulness of the Policies
Economic recessions are often portrayed as short-term events. However, that is not entirely true. Recession’s problems often have long-lasting effects on any country’s economy. High unemployment; falling incomes and reduced economic activities are still part of the American life, but it is undeniable that economic policies such as the TARP, effectively reshaped the country’s economy and took it out of the depression. That is why the economic stimulus is of capital importance to drive countries out of recessions in the short-term. However, it is still too early to assess the effects of policies such as the TARP.
References
Binder, A., & Zandi, M. (2010, July 27). How the Great Recession Was Brought to an End. Retrieved August 26, 2015, from https://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf
Consumer Price Index for All Urban Consumers: All Items. (2015). Retrieved August 26, 2015, from https://research.stlouisfed.org/fred2/series/CPIAUCSL/
Friedman, M. (1969). The Role of Monetary Policy. In The Optimum Quantity of Moneyand Other Essays (pp. 95-110). Aldine Publishing Company.
GDP and the Economy. (2009, February 1). Retrieved August 26, 2015, from http://www.bea.gov/scb/pdf/2009/02 February/0209_gdpecon.pdf
Hetzel, R. (2009). Monetary Policy in the 2008–2009 Recession. Economic Quarterly, 95(2), 201-233. Retrieved August 26, 2015, from https://www.richmondfed.org/~/media/richmondfedorg/publications/research/economicquarterly/2009/spring/pdf/hetzel2.pdf
The Recession of 2007–2009. (2012, February 1). Retrieved August 26, 2015.