Question

Starting in 2008, the United States experienced the greatest economic calamity since the Great Depression. To combat rising unemployment, negative economic growth, and deflation, among other problems, the U.S. government employed instruments/policies from both the fiscal and monetary tool kits Describe the major problems of the “Great Recession.” What required immediate government action, from the perspective of many public officials?

1. Monetary policy: Describe how the Federal Reserve respond to the crisis. Be sure to discuss interest rates and open market operations.
2. Fiscal policy: Describe Congress’s response to the crisis. Be sure to discuss the American Recovery and Reinvestment Act of 2009.
3. Explain the goals of the fiscal and monetary policies employed. Address “stimulating aggregate demand” and the role of “increasing the money supply” in your response.
4. Evaluate the success in the policies.  

Answer 1

In response, the Federal Reserve provided liquidity and support through a range of programs motivated by a desire to improve the functioning of financial markets and institutions, and thereby limit the harm to the US economy.Expansionary fiscal policy is most appropriate when an economy is in recession and producing below its potential GDP. Contractionary fiscal policy decreases the level of aggregate demand, either through cuts in government spending or increases in taxes.When inflation gets out of control the Fed raises the federal funds rate, leading to higher interest rates and less spending throughout the economy. Starting in September 2007, the Fed began steadily reducing interest rates until June 2008.The Great Depression began in the United States of America and quickly spread worldwide. It had severe effects in countries both rich and poor. Personal income, consumption, industrial output, tax revenue, profits and prices dropped, while international trade plunged by more than 50%.As the financial crisis and recession deepened, measures intended to revive economic growth were implemented on a global basis. The United States, like many other nations, enacted fiscal stimulus programs that used different combinations of government spending and tax cuts.Major causes of the initial subprime mortgage crisis and following recession include: International trade imbalances and lax lending standards contributing to high levels of developed country household debt and real-estate bubbles that have since burst; U.S. government housing policies; and limited regulation of non govt policies.The all-time low was 0.25 percent. That's effectively zero. The Fed lowered it to this level on Dec. 17, 2008, the 10th rate cut in a little more than a year.

Falling prices increased the burden of debt on farmers, business firms, and home owners, and bankruptcies and foreclosures increased. The federal government under President Herbert Hoover moved promptly to try to deal with the Depression.The causes and the extent of the Great Depression were exacerbated by the 1932 drought that was followed by dust storms and the Dust Bowl. ... The devastating effects of the Great Depression were unemployment, homelessness, debt, bankruptcies, suicides, hunger, evictions, wage cuts, dejection and despair.

As the financial crisis and recession deepened, measures intended to revive economic growth were implemented on a global basis. The United States, like many other nations, enacted fiscal stimulus programs that used different combinations of government spending and tax cuts.The most widely recognized successful implementation of monetary policy in the United States occurred in 1982: the anti-inflationary recession caused by the Federal Reserve under the guidance of Paul Volcker. The U.S. economy of the late 1970s was experiencing rising inflation and rising unemployment.