Demand-side Policies and the Great Recession of 2008

Demand-Side Policies and the Great Recession Of 2008
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Introduction:
A recession refers to two consecutive quarterly declines in Real GDP and may be indicated by the peaks of the cycles that represent the start of recessions after end of expansion (Arnold, 2010). The demand-side policies look at the consumption and demand of goods unlike the supply side police that highlight production and investment capital to improve the economy. The government used expansionary fiscal and monetary policies after the 2008/2009 Global Recession. Fiscal policies are those that affect the aggregate demand of the economy, including the government expenditure, changing tax rates, consumer expenditure as well as net imports. On the other hand, monetary policies affect money supply, especially through interest rate changes. Demand-side policies, including tax cuts, government expenditure and lowering the interest rates were all used to aid recovery after the Great Recession of 2008.
Global Recession
The Global Recession was deep compared to other recessions affecting other countries because the global financial market is closely intertwined. The recession resulted in uncertainties because there was a financial crisis that affected the economy. The response of governments through monetary policies and stabilizing actions is necessary, but the financial crisis was severe unlike other recessions. The use of fiscal stimulus packages integrating further tax cuts and government spending have been synonymous with efforts to improve the economy after the Global Recession. The media highlighted the stimulus package more compared to monetary policies, while no consensus among legislators, the public and economists on the effectiveness of government spending.
Fiscal policies
Under the demand-side policies the objective is to increase the aggregate demand, but there is no agreement on the most effective strategy to achieve this. Nonetheless, the policy makers take into account the automatic and discretionary aspects when responding to the recession. Inevitably, government expenditure increased with the rise in unemployment where people required more welfare benefits and unemployment insurance as they had lower or no income at all (Tcherneva, 2011). At the same time, there was a reduction in government revenue with the economy having contracted, and this increased the government deficit. Tax cuts targeting businesses and households as well as aid provided to the states were identified to aid in the recovery process.
The bailing out of the banks was targeted the big players beginning with the nonperforming assets. Under the Troubled Asset Relief Program (TARP), bailouts in the banking and motor industry were undertaken to stabilize the industries to facilitate credit flow and continued investment (Tcherneva, 2011). Policy makers favoring this stance sought to mitigate the risk of contagion to other sectors of the economy if the banking and motor industry failed. Government expenditure was extended to the purchase of real goods with the aim of stimulating the economy together with income assistance and the tax cuts. Nonetheless, one of the main challenges to facilitate recovery is that households and ...