The Great Recession

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The United States and Economic Policies

The United States not only used the most ambitious economic and monetary policies to stimulate the economy in 2008, but it has used them to counter the crisis. An economic recession is a time of economic depression marked by a year's worth of two successive quarters of a country's gross domestic product decline (Friedman & Schwartz, 2008). Monetary policies are country legislation used by the central bank to control interest rates and the availability of capital in the economy in order to accomplish macroeconomic targets such as lowering unemployment and inflation. The percent change in the value of a whole sale price index (WPI) is referred to as inflation which is caused by various reasons such as demand and supply money imbalances, production change tax increase in products and changes in distribution cost. On the other hand, fiscal policies are regulations that central bank came up with to help the government in adjusting the rate of tax charged and amount of funds spent on the economy in helping in influence economic conditions that prevail. To manipulate or control economic conditions that prevail, policies of fiscal and monetary must, therefore, be both implemented.

Monetary Policies

The use of federal fund rate was employed by a national bank in efforts of stabilizing the economy during the great recession. The rate that central bank gave banks to guide them in lending and borrowing money is referred to as federal funds rates. The federal fund's strategy brought expansion of the constricted economy. There were various advantages of lower rates, for instance, banks and business people acquired funds that kept them afloat during the recession and According to Friedman & Schwartz (2008), it led to an increase in the economy's money supply since it encouraged people to take credit.With this policy, the issue of skyrocketing individuals losing their jobs due to cash flow issues that employers experienced was addressed. Companies were therefore on operation hence securing jobs that would have been lost if nothing was done to help companies that were cash-strained.

Secondly, the federal bank used quantitative easing between2009 and 2014.Quantitative easing was used to help stimulate the economy since the low federal rate was in operation. The bank took part in purchasing of various products such as massive treasury bonds and mortgage-backed securities. It was necessary to take this action to reduce the country's long-term interest rates and expand the balance sheet of the bank. During the recession, the real estate industry was saved from collapse by this policy hence jobs opportunities in this field were secured. Money which helped improve the disposable income of citizens and business all over the country was as well injected into the economy through this method.

Finally, the federal bank increased deposit limits insurance and debts of banks guaranty. The Troubled Asset Relief Program was passed and through it injecting money into the National banks by the federal bank was possible. The said program was passed in 2008. Through it, banks were protected from depression as well as its effect and credit could be advanced to other businesses at low-interest rates through the money. The existing job opportunities were as well preserved through this policy hence unemployment rates were reduced.

Fiscal Policies

Due to the recession, the government came up with legislations that federal banks used in stabilizing the economy. The Congress enacted the economic stimulus act in 2008 which had several benefits. The law ensured that businesses were given tax incentives that are; low-income earners were given tax rebates (Godley, 2012) hence businesses continued investing in the country. Investments stimulated by this incentive played a significant role in stabilizing the economy. Unemployment rates which were at 6% were as well reduced (Claessens et al., 2009).Through tax rebates, there was an increased U.S taxpayers disposable income through the act, and this led to an increase in the money the economy spends benefiting it.

Secondly, the Act of American Recovery and Reinvestment was implemented in 2009 by the Congress to create job opportunities and preserve the current ones. According to Godley (2012), the private spending of the economy was to be backed by Federal Reserve to achieve this and by using government spending to cover all the deficit. It helped in ensuring optimum money supply in the economy with changing hands of money and business flourished and hired new employees. It brought the overall growth of the economy.

In conclusion, countries that were affected by depression handled it in different or rather unique ways. The United States, for instance, used monetary policies to ensure that money supply of the economy is adequate for supporting domestic trade which significantly adds value to the country's GDP. The U.S as well took Fiscal policies measures to ensure that citizens have adequate money to spend for instance increase of citizens' disposable income through tax rebates. Business was maintained through the policies through reduction of the rate of citizens' unemployment. Fiscal and monetary policies, therefore, played a major role in stabilizing the United States economy after the great depression.


Claessens, S., Kose, M. A., & Terrones, M. E. (2009). What happens during recessions, crunches and busts?. Economic Policy, 24(60), 653-700.

Friedman, M., & Schwartz, A. J. (2008). A monetary history of the United States, 1867-1960. Princeton University Press.

Godley, W. (2012). Seven unsustainable processes: medium-term prospects and policies for the United States and the World. In The Stock-Flow Consistent Approach (pp. 216-254). Palgrave Macmillan UK.

November 09, 2022

Government Life


Economy Personal Finance

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