The Great Recession and the Impact on the US Economy

The Great Recession
Student Name
Institution
Abstract
A recession refers to a period in which there is a decline in economic activity or where the GDP declines for at least two quarters. The period saw unemployment rates rise more rapidly as compared to previous recessions, reaching around 9.5% in 2009. There was also a net decrease of 63,000 business establishments. The government employed both monetary and fiscal policies to curb the effects of the recession and to spur economic growth. The Federal Reserve lowered interest rates to zero which led to increased borrowing by various individuals and businesses leading to increased liquidity. It also purchased the Freddie Mac and Fannie Mae mortgage-backed securities as well as the Treasury bonds to increase liquidity. As part of its fiscal policies, the government signed the Economic Stimulus Act which ensured that tax rebates were offered to lower and middle-income households to increase spending which would spur economic growth. The US government also increased its expenditure to spur investments and development by the signing “The American Recovery and Reinvestment Act” in the year 2009.
Keywords: Fiscal policy, monetary policy, Recession,
A recession in economics refers to a period in which there is a decline in economic activity or where the GDP declines for at least two quarters. The period is usually accompanied by a plummeting house market, increased unemployment, poor performance of the stock market, and a decline in the quality of life in the country.

The Great Recession was experienced from December 2007 to June 2009 as it was during this time that the US experienced its greatest economic slowdown in over 60 years. The period saw unemployment rates rise more rapidly as compared to previous recessions, reaching around 9.5% in 2009. There was also a net decrease of 63,000 business establishments during the period (Bureau of Labor Statistics, 2012). There was then an overall decrease in consumer spending in almost all industries and categories except in healthcare. The recession was blamed on ineffective tax lending standards that led to increases in developed countries’ household debts and major international trade imbalances. The issuing of risky mortgages and questionable financial markets, therefore, played a significant in the economic decline. The US government, therefore, had to act fast to stop the rapid economic decline mainly through various monetary and fiscal policies. The government made use of one of the most aggressive fiscal and monetary policies to have been used as well as involved other players such as the Congress, the Federal Reserve as well as the States government.
Monetary policies
Monetary policies refer to the actions of currency boards, central bank or other money regulatory committee that determine money supply in an economy as well as the interest rates in that country. This is usually though actions activities such as changing the required bank reserves, selling or buying of government bonds, and modifying the interest rate. Monetary policies are usually contractory or expansionary, lowering and raising money supply consecutively.
Facing an imminent collapse of the global financial markets, the government moved in to mitigate the increasing recession as well as well as to stabilize the weak financial system at the time to ensure a reversal in the nation’s economic growth. At the time a substantial number of financial institutions had crashed, stock prices had plummeted, and liquidity fell. The Federal Reserve decided to first lower interest rates to zero by the end of the year 2008. This led to increased borrowing by various economic actors leading to increased liquidity (Ohanian, 2010).
The Federal Reserve also utilized massive quantitative easing to bring the interest rates to popular figures. The institution purchased the Freddie Mac and Fannie Mae mortgage-backed securities as well as the Treasury bonds which had eaten up into the country’s liquidity at the time. The Federal Deposit Insurance Corporation, on the other hand, increased the deposit insurance limits while the Treasury established the Troubled Asset Relief Program where the government purchased failing equity and assets from banks to boost their financial strength. With these actions, the government managed to increase the money supply and boost liquidity that would support economic growth.
Fiscal policies
Fiscal policy is the use of tax policies and government spending to influence a country’s economy. During the recession, the US government utilized various fiscal policies to ensure that the economy was back to its desired state. One of the measures was signing 2008’s Economic Stimulus Act which ensured that tax rebates were offered to lower and middle-income households. The decision was based on the fact that more money in the individuals’ pockets would be accompanied by more spending which would spur economic growth.
The US government also increased its expenditure to spur investments and development. This was specifically assisted by the signing of “The American Recovery and Reinvestment Act” in the year 2009 which led to approval of an over $700 budget to offer tax credits to businesses and working households, expand loans and federal grants and increase funding to benefit programs (Ohanian, 2010). The increased expenditure had the effect of increasing aggregate demand and job creation which would drive economic growth. The demand was further increased by increases in income from more employment. The policies were quite successful in that around 2.7 million jobs were added to the economy while the GDP rose by around three percent.
Conclusion
In conclusion, although the aggressive policies adopted by the government to curb the recession did not eradicate the harmful effects of the recession fully, there was a notable success in the efforts to increase employment and improve economic growth. Monetary and fiscal policies can’t be perfect to lead to a 100% success or the actual position desired. There have however been significant changes in the economy since the recession ended in 2009. To start with, the unemployment rate, which stood at 9.5% in 2009, had decreased to around 5.8 in 2014 (Bureau of Labor Statistics, 2014). The household equity also stands at over $8,000 billion while saving rates fell to 3.8 in 2012, up from 6.1% in 2009 (Elwell, 2010). Consumer spending has therefore risen when compared to the recession period.
References
Bureau of Labor Statistics. (2012). Cite a Website – Cite This For Me. Bls.gov. Retrieved 28 January 2018, from https://www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf
Bureau of Labor Statistics. (2014). Retrieved 28 January 2018, from https://data.bls.gov/timeseries/LNS14000000
Elwell, C. (2010). Economic Recovery: Sustaining U.S. Economic Growth in a Post-Crisis Economy. Ft. Belvoir: Defense Technical Information Center.
OHANIAN, L. (2010). Understanding Economic Crises: The Great Depression and the 2008 Recession. Economic Record, 86, 2-6. http://dx.doi.org/10.1111/j.1475-4932.2010.00667.x