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Introduction
The term recession refers to a period in which the economy declines, unemployment rises, the stock market falls, and the housing market suffers. Whenever there is a recession, everyone from the Federal Reserve to the president to the federal government gets blamed. Several variables might lead to recessions, including rising inflation and interest rates and decreasing consumer confidence. However, different monetary and financial measures have been implemented to help the economy recover from the crisis. The Great Recession was a difficult moment for the United States, and sadly, Americans have suffered immensely due to their efforts to rise out of it (Salvatore, 2020). Even though it is believed to be a regular part of the economic cycle, entering a recession has devastating productivity and growth. As part of its response to the Great Recession, the Federal Reserve (the Fed) pursued fiscal and monetary measures that were effective and efficient. Therefore, this essay will focus on the great recession, fiscal and monetary policies, and their impacts on the U.S. economy.
Fiscal and Monetary Policies
Many governments use both fiscal and monetary policies to help their economies work at their best. According to Page-Hoongrajok (2021), fiscal policy may be an effective countercyclical policy tool depending on the recession occurring. The author also stresses the need for budgetary adjustment during economic downturns. As one example, governments must alter expenditure since it is less expensive than raising taxes. Central banks, on the other hand, influence the choices of economic actors via monetary policy. The interest rate channel, expectation mechanism, credit channel mechanism, and exchange rate channel are some channels utilized to influence the choices. The federal funds rate and the money supply are used to execute monetary policy in the United States. There is a direct correlation between changes in the federal funds rate and market interest rates, such as corporate bonds and mortgages. Investment and savings choices are also affected by changes in interest rates.
Monetary policy in recessions tends to be expansionary due to several considerations. Thus, businesses are encouraged to create jobs and expand their operations while increasing consumer demand due to a decreased government funding rate. The Great Recession of 2008/2009 caused the United States to lose its GDP (Salvatore, 2020). After a gradual recovery began in 2009, the United States economys growth has steadily increased since then. Despite this, the recuperation process has been inconsistent and sluggish (Salvatore, 2020). Due to the 2008/2009 financial crisis, governments and central banks implemented a wide range of unorthodox fiscal and monetary policies in response to the recessions length and extent (Salvatore, 2020). In addition to their zero percent policy rates, banks used a variety of other stabilizing measures whereby tax cuts and more significant government expenditure were the primary goals of the ruling class. Therefore, production growth and inflation were stabilized. Assets and stocks rebounded as a consequence of the steps implemented.
The U.S. Federal Reserve lowered interest rates as a monetary response to the Great Recession. More aggressive measures were used in addition to the reduction in interest rates, such as the growth of central bank balance sheets and fiscal stimulus (Reisenbichler, 2020). Tax cuts and expenditure increases were included in several of the fiscal stimulus packages that were passed. Policies to stabilize inflation and U.S. economic activity were the primary goal of these measures. Demand for products and services increases as a result of more government expenditure. Increased government expenditure also promotes employment, which leads to a rise in income. As a consequence, the rate of consumption rises because businesses and families have more money to spend. Both businesses and consumers benefit from lower taxes compared to higher government expenditure. There is an increase in saving as a consequence of higher discretionary incomes.
Life-changing events occurred during the Great Recession, and many Americans will never forget it as the moment when they lost their jobs and homes. Fortunately, the United States has a supportive political structure. The Federal Reserves flexibility to create and execute fiscal and monetary policies has accelerated economic growth. Since government spending and reduced interest rates helped mitigate the effects of the Great Recession, fiscal policy has been effective. Economic growth began to accelerate with the implementation of monetary policy by the Federal Reserve and the availability of the Fed to affect the cost of money. Overall, both fiscal and monetary policies effectively revived the economy during the Great Recession and are still in effect today.
Conclusion
The Long-term economic recovery in America would depend heavily on consumer spending habits and a resurgence of diverse businesses. Although consumer spending is still poor, demand-side reforms have significantly impacted the economy. Additionally, Europes fiscal stimulus is losing its effect, and the U.S. economys growth is slackening further. Although credit conditions are improving, obtaining loans for both firms and individuals has grown simpler. Markets rebounded, and corporate bond interest rates narrowed, as well. The manufacturing industry, housing sector, and non-farm payroll sector are all showing signs of recovery. The Great Recessions expansionary fiscal and monetary policy measures have positively impacted the economy and employment. Inflationary pressures have been reduced, and the economy has steadied as a result of monetary expansions. However, the federal government must cope with fiscal shortfalls.
References
Page-Hoongrajok, A. (2021). Can state and local government capital spending be a vehicle for countercyclical policy? Evidence from the new interview and survey data. Journal of Post Keynesian Economics, 44(2), 184-207. Web.
Reisenbichler, A. (2020). The politics of quantitative easing and housing stimulus by the Federal Reserve and European Central Bank, 20082018. West European Politics, 43(2), 464-484. Web.
Salvatore, D. (2020). Growth and trade in the United States and the world economy: Overview. Journal of Policy Modeling, 42(4), 750759. Web.
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