Demand-side Policies and the Great Recession of 2008 (Macronomics)

Demand-side Policies and the Great Recession of 2008
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Demand-side Policies and the Great Recession of 2008
Introduction
Recession is generally referred to as a business cycle characterized by a decline in GDP for a given region, which lasts for two consecutive quarters. However, the NBER (2008) says that a recession does not necessarily have to be defined based on the period of two consecutive quarters. Accordingly, the NBER (2008) considers a recession to be a significant contraction of economic activities throughout an economy for longer than a few months and is noted when there is a fall in real GDP or income, increased unemployment, as well as a decline in retail sales. Recession typically manifests through an adverse demand shock, which leads to a widespread decline in spending. It follows that such a demand shock may be triggered by events like a financial crisis, a serious external trade shock, a severe supply shock, and a widespread man-made or natural disaster such as a pandemic. This paper focusses on the economic impacts of the financial regulations enacted in the U.S. in 2008 when the Great Recession occurred.
Fiscal Policies
Fiscal policies are interventions during a financial crisis through changes in government spending and taxes to influence economic recovery. The White House and Congress in the U.S. are responsible for implementing fiscal policies during a recession. Fiscal policies are often expansionary, which means that the government increases expenditures while reducing taxes to encourage firms to increase economic activities such as production and hiring of employees. Following the Great Recession of 2008, the U.S. Congress passed the American Recovery and Reinvestment Act. The legislation saw the introduction of a $787 billion fiscal stimulus package, including $288 billion of taxation benefits and reductions, as well as $150 billion for other departments like education, power, and transport (CONGRESS.GOV, 2009).
Monetary Policies
The Federal Reserve undertakes financial regulations through money supply variations and funds' rate. Theoretically, any of these variations affect other interests like an auto loan, corporate bonds, and mortgage rates. The variations in interest charges further influence decisions on savings and investments. Just like the fiscal policies, monetary policies are expansionary. Accordingly, the government's financial rate is reduced, hence permitting businesses to increase their productivity and hire more workers while enabling users to spend a lot. During the Great Recession of 2008, the U.S. Federal Reserve...