The Great Recession in USA

This paper reflects on the major causes responsible for recession and its impact on US economy. The fiscal and monetary policy adapted by the US government. The policies adapted by US government to cope up with the macroeconomic challenges have been discussed in the paper. Lastly, some of the recommendations have also been provided to counter the problems of recession.
The Great Recession in USA
Recession is a significant decline in the economic activities of a country for an extended period that can last for more than few months. United States (US), which is the most developed economy, has been experiencing a robust growth since the Great Depression till 2007, when the recession hit the economy once again. It is considered to be the largest downturn in the US economy experienced since 1930s Great Depression and it lasted from December 2007 to June 2009 (Irons 25). This paper studies the causes of the Great Recession of 2008 and its effects on the major macroeconomic indicators of the US economy. The study also highlights the fiscal and monetary policies undertaken by the US government in order to reduce the impact of recession and what were the consequences after the instigation of such regulations.
Economic Situation Before and After the Crisis
GDP is an indicator of a country’s economic growth and it is comprised of consumption, investment, government expenditure and net exports. The recession in a country denoted a substantial fall in the GDP which can be caused by the decline in any of its components. The recession began as an effect of housing bubble in the US which had started in 2007 (Verick and Iyanatul 56). The prices of the real estate properties or houses soared up during that period due to excessive demand for housing. Expecting a further rise in prices, speculators entered the market in order to make high profits and a point was reached when supply was more than the demand. The excess of supply resulted in sharp fall in the prices and hence, bubble bursts (Martin 56). The pre-crisis boom in the housing market insisted the financial institutions to provide large amount of mortgaged backed securities and assets at exceptional levels. The following section shows the trends in growth rate of GDP, unemployment, inflation and wages during pre and post crisis of 2007 (Irons 83).
The above graph represents the real per capita GDP growth rate of US during the period of 1990 to 2014 in the US economy. It indicates that the economy experienced positive growth rate since 1990 except in the years 2008 and 2009 when the growth rate fell dramatically to -0.29% and -2.77% respectively. The fall in the growth rate was apparent due to the recession that the economy was facing at that time. The fall in the investments in the housing and real estate had direct impact on the economy’s consumption, as it constituted a major proportion of consumers’ spending.
The effect of fall in the growth rate of GDP to negative led to decline in the level of employment in the economy to a great extent. The following graph shows the rising unemployment post crisis of 2008.

The Great Recession in USA

Type: Assignment
Domain: Macroeconomics
Words: 1500
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