Running Head: Great Recession 1. Great Recession5. . .

As the onslaught of the sub-prime mortgage crisis began in late 2007, the housing market plummeted sending the economy into what is now known as the Great Recession. The Federal Reserve, as well as the private and government sectors, quickly took notice. In November of 2008 the Federal Reserve undertook its first trimester of quantitative easing; which means the Fed began purchasing treasury securities to increase the money supply in the system, with the hopes that the increase in assets would encourage lending and investment, leading to a resurgence of the economy in terms of unemployment rates and GDP. As time progressed the Fed continued to implement quantitative easing into its third trimester due to a lack of sufficient results.

Max: Now that we have taken care of fiscal policy we must acknowledge the second half of the efforts to pull ourselves out of the recession. Monetary policy! Monetary policy is the action of the federal Bank of the United States of America to manipulate the economy using the three tools. The three tools are open market operations, discount rate, and reserve requirements. The most commonly used tool is OMO’s, the fed buys bonds from the federal government and then sell to the public. With the profit they make from the bonds sold to the public they buy more bonds. And then it continues in this cycle.

Recession is a term that looms over any society at some point or another but what does recession mean for the economy, in short it is an economic decline. This essay will examine the meaning of recession and will discuss the fiscal and monetary policies that are used to pull economies out of recessions. The great Recession of 2008 will shed light on how these policies were successful at restoring economic growth and reducing unemployment.

Today the United States Americans more than ever; there is a constant fear of an awaiting recession due to the economy. The recession in the later 2000’s has been known as the greatest economic decline since the Great Depression. The United States of America, the banks and businesses are not able to succeed and are failing due to the market. Many people across America cannot afford their homes or bills due to the unemployment rate that seems to keep increasing. Many people blame this on the higher oil or gas prices, and the wars that the United States acts on. The recession has overall declined our economic activity in business profits, employment, and investment. This is all due to our falling market, and the rise of prices that so many Americans cannot afford.

The Federal Reserve went into action in response to the 2008 recession by rapidly reducing interest rates with the hopes of encouraging economic growth. The federal funds target rate was decreased to between zero and .25 percent. The results of the rate changes caused what is called “zero bound”, this reduced the effectiveness of monetary policy with the near non-existence of interest rates.

Monetary policy uses changes in the quantity of money to alter interest rates, which in turn affect the level of overall spending . “The object of monetary policy is to influence the nation’s economic performance, as measured by inflation”, the employment rate and the gross domestic product, an aggregate measure of economic output. Monetary policy is controlled by

Since World War II, government policymakers have tried to promote high employment without causing inflation (National Archives, 2010). If the economy experiences a recession such as the one that plagued the UK, policymakers, two principal sets of tools to use are aggregate demand: monetary policy. These involve the control of interest rates or the money supply, and fiscal policy, the control of government spending and taxes (National Archives, 2010).

A recession is full-proof sign of declined activity within the economic environment. Many economists generally define the attributes of a recession are two consecutive quarters with declining GDP. Many factors contribute to an economy's fall into a recession, but the major cause argued is inflation. As individuals or even businesses try to cut costs and spending this causes GDP to decline, unemployment rate can rise due to less spending which can be one of the combined factors when an economy falls into a recession. Inflation is the general rise in prices of goods and services over a period of time. Inflation can happen for reasons such as higher energy and production costs and that includes governmental debt.

What about monetary policies during the great recession? The Bush administration executed The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009.

Just as the world has experienced economic challenges in the past, so is it today. Before the Great Depression took place in the USA in 1929,USA had witnessed 19 recessions. And we have continued to encounter economic recessions to this day, the most recent one being that of 2008 which began in the USA but also had ripple effects on the entire global economy. These economic recessions have a negative impact on the well being of human kind. For example during the period of the "Great Depression" in the USA: 12 million people lost their employment, 85 thousand businesses collapsed and a multitude of households were unable to hold their homes.

Therefore, the quantitative easing adopted from 2009 was trying to gradually resume sustainable economic growth. Quantitative easing has helped to avert what could have been a second great depression (Wall Street, 2011). The US economy has been clawing its way out of the recession in 2009 and recovery has been slow compared to previous economic cycles. Regular review of the pace of securities purchase by the Federal reserve and the overall size of asset-purchase program in light of incoming information and adjusting the program as need be will help foster maximum employment and price stability.

As noted in the article, policies in the business cycle is one of the factors that aided the great depression. In the article, it provided that from the year 1921 to mid of the year 1929 there is a 60% increase in the money supply (Reed, 2012). As a result, there was an inflationary effect that was considered by the then government of the United States of America a threat to the economy. The government was thus to intervene to save the economy.

As the global economy stagnated, weak countries were targeted by bond vigilantes, making it difficult to finance and forcing up their financing costs. Nations were focused to implement austerity programs, cutting spending and increasing taxes to stabilise public finances and reduce debt, trapping them in recessions or low growth, which only aggravated the problem. With the basic strategy ineffective, the focus shifted to keeping interest rates near zero and creating inflation to increase nominal GDP. If the budget could be kept in check, then debt levels would not rise and perhaps begin to fall. ... The policies, especially QE, helped stabilise conditions by lowering borrowing costs and allowing high debt levels to be managed, but did not restore growth or create sufficient inflation. The predictable failures were reminiscent of

EFORE the financial crisis life was simple for central bankers. They had a clear mission: temper booms and busts to maintain low and stable inflation. And they had a seemingly effective means to achieve that: nudge a key short-term interest rate up to discourage borrowing (and thus check inflation), or down to foster looser credit (and thus spur growth and employment). Deft use of this technique had kept the world humming along so smoothly in the decades before the crash that economists had declared a “Great Moderation” in the economic cycle. As it turned out, however, the moderation was transitory—and the crash that ended it undermined not only the central bankers’ record but also the method they relied on to prop up growth. Monetary

The role of macroeconomics in national economies is the creation of a stable and sustainable economic environment. The government is able to play this rule by using monetary policy interventions. The monetary policy makers often act independently to correct instability in the economy or to ensure that stability continues. The 2008 recession led to an intense debate over the ability of monetary policy to stimulate the economy when the interest rates are already below zero. A majority of the people who engage in discourse on the matter seem to believe that its ability is greatly undermined in such a scenario.