Demand-Side Policies And The Great Recession Of 2008 (Essay Sample)
Macroeconomic analysis deals with the crucial issue of government involvement in the operation of "free market economy." The Keynesian model suggests that it is the responsibility of the government to help to stabilize the economy. Stabilization policies (demand-side and supply-side policies) are undertaken by the federal government to counteract business cycle fluctuations and prevent high rates of unemployment and inflation. Demand side policies are government attempts to alter aggregate demand (AD) through using fiscal (cutting taxes and increasing government spending) or monetary policy (reducing interest rates). To shift the AD to the right, the government has to increase the government spending (the G-component of AD) causing consumer expenditures (the C-component of AD) to increase. Alternatively, the Federal Reserve could cut interest rates reducing the cost of borrowing thereby encouraging consumer spending and investment borrowing. Both policies will lead to an increase in AD.
Develop an essay discussing the fiscal and the monetary policies adopted and implemented by the federal during the Great Recession and their impacts on the U.S. economy. Complete this essay in a Microsoft Word document, and in APA format. Note your submission will automatically be submitted through "TurnItIn" for plagiarism review. Please note that a minimum of 700 words for your essay is required.
Your paper should be structured as follows
1. Cover page with a running head
2. Introduction: What is the economic meaning of a recession?
· A brief discussion of fiscal policies
· A brief discussion of monetary policies
3. Conclusions: Discuss the extent to which the use of demand side policies (fiscal policy and monetary policy) during the Great Recession of 2008 has been successful in restoring economic growth and reducing unemployment
Demand-Side Policies and the Great Recession of 2008
The world economy is experiencing a period of change, with the various types, and effects of economic policy having a foremost issue in the economy. Aggregate demand and aggregate supply are the key determinants of the level of activity in an economy. For an economy to achieve macroeconomic policy aims, the government uses a range of policies such as fiscal and monetary policies. Both the fiscal and monetary policies had a great influence in the United States during the Great Recession. The implementation of the policies was of great impact to the country’s economy.
The fiscal policy involves taxation and government spending to manage the aggregate demand. The revolutionary fiscal policy focuses on increasing government spending or cutting the tax rates to enhance aggregate demand (Rich, 2013). Monetary policy, like fiscal policy, also seeks to influence aggregate demand. Monetary policy controls the price or quantity of money either through money supply, exchange rate or interest rates. The Great Recession began in 2007 and ended in 2009. During this period, the real gross domestic product (GDP) decline led to high unemployment rates in the economy. These financial crises caused a rapid effect on the real economy, leading to a significant decrease in the gross domestic product of the country....
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