The Crisis Of The Global Economy Essay

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The Banking crisis began in 2007 and despite the efforts of the central banks and regulators to restore calm, it continued and gathered intensity for a further year. By the end of 2008 and early 2009 the financial system and the global economy appeared to be locked in a descending spiral and the prevention of a prolonged downturn became the primary focus on government policy. This was a global crisis with many countries suffering a drop in GDP, negative growth, bankrupted businesses and banks and thus high unemployment rates. This crisis was a systematic failure in which many problems led to an eventual meltdown of the global economy. But how did the UK manage this crisis and what policies are we using in the current macroeconomic environment where there is so much uncertainty surrounding the UK EU referendum and the current election of President Donald Trump.
As the financial crisis intensified the government sought to use a mix of monetary and fiscal policies in order to keep inflation around 2% and maintain positive economic growth. Monetary policy aims to control the money supply through the central bank interest rate. Fiscal policy is the way in which a government adjusts its spending levels and tax rates to change the level of output in an economy. Both policies effects can be shown using a IS-LM diagram.

Figure 1 IS-LM Model
The IS/LM model, shows the relationship between interest rates and real output in the money market and goods & services market. When
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