Demand-side Policies and the Great Recession of 2008

Demand-Side Policies and the Great Recession of 2008
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Demand-Side Policies and the Great Recession of 2008
Introduction
In the late 2000s, the US faced severe economic recession due to excessive unemployment and the burst of the housing bubble. Hence, the downturn of economic activities from 2007 to 2009 was the most challenging period for the US government as the economy collapsed. The prime reasons of Great Depression include the focus on contractionary fiscal policy, mortgage crises, trade imbalance, housing bubbles, ineffective housing policies, high inflation, limited control policies, inappropriate taxes, high-interest rates, declining GDP and economic crises overall. In the respective critical situation, federal government, Securities and Exchange Commission and treasury bodies focused on modifying the economic policies to favor the economic crises and manage those crises dynamically (Card & Mas, 2016). The financial authorities consider monetary and fiscal policies to recover recession as the research highlights the influence of those policies on the recession.
Discussion
Monetary Policy
The influence of monetary and fiscal policy on the aggregate demand and supply indicates the shift from recession to the recovery of the economic cycle. According to Blanchard and Summers (2019), the monetary policy emphasizes the reduction of unemployment and declining interest rate, whereas the fiscal policy considered as the most responsive tool to deal with economic recession with tax cuts and investing in developing projects. Hence, those policies improve demand that enhances the productivity of the state, which magnificently stable the economic condition.
The economic recession excessively affected the GDP and employment rate in the US market for which the Federal reserves declined the fund rate to manage the situation. However, the conventional monetary policy showed no effectiveness by lowering the cost of investment and borrowing. Hence, the conventional policy is no viable for the long-term due to the severe condition of the economy (Bustamante, 2018). Correspondingly, the failure of monetary policy in regulating the crises indicates the significance of fiscal policy to deal with economic complexities appropriately.
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