Great Recession in USA Assignment
13 Pages2830 Words156 Views
Added on 2019-11-08
Great Recession in USA Assignment
Added on 2019-11-08
ShareRelated Documents
Running head: GREAT RECESSION IN USAGreat Recession in USAName of the StudentName of the UniversityAuthor note
1GREAT RECESSION IN USAIntroductionGlobal financial crisis of 2007 has its long-term effect on many countries, making it agreat recession of that period. The main driving factor behind the crisis was identified as thebreakdown of financial system and consequent financial bubbles. The great recession untilreached to its lowest point, destructed approximately $20 trillion assets of U.S household.Consequently, unemployment rate rose significantly in US. Impact of the recession was notlimited To USA only. It has well documented effect on cross border countries. With an economicdownturn in USA, many countries have faced a depressed demand for their export and a declinein their investment in USA. Most of the Americans believe that the cause for the great depressionwas subprime mortgage crisis, Wall Street greed and Lehman brothers. However, there arenumber of other factors that affect that together cause economic downturn. Apart from weak financial condition, USA economy was suffering from variousstructural problems. Problems begin with a speculative growth of demand generated prior torecession. The financial and structural problems cumulatively result in an inevitable crisis for theeconomy. A self-reinforcing crisis cycle was created because of a combining effect financialbreakdown and consumer debt. These two effect together results in severe financial crisis,ultimately triggering the Great Recession. Defining recession Recession indicates a situation where there is an overall declining trend in differenteconomic activities including production, trade and industrial expansion leading to a contractionof both demand and supply side phenomenon. This actually triggered from a low aggregatedemand. Low demand discourages producers to contract their supply (Greenglass et al. 2014).
2GREAT RECESSION IN USAThe related effect of low aggregate demand and aggregate supply is the increasingunemployment, lower wages and finally a declining living standard in the economy. Recession isoften responsible in creating a circular effect that pushes the economy in a continuous downturn.In this situation intervention through fiscal and monetary tool, become necessary. Some possible factors leading to economic recession are as follows.High rate of interestInterest rate is the cost of investment. High interest rate increases the cost of investment,which means it restricts liquidity in the economy. High interest rate reduces tendency forinvestment (Hyra and Rugh 2016). Low availability of investible fund means lower productionand hence low income and low demand. InflationInflation refers to a gradual increase in general price level. In times of inflation, value ofmoney decrease and this reduces the purchasing power of people. Therefore, with same amountof money people demand less. Reduced confidence of consumerDemand in an economy depends on the confidence of the consumers. In case, theybelieve the economy is in a bad state they restricts their spending. Reduced real wage and incomeAnother important factor determining state of the economy is the prevailing real wage.Real wage is obtained by dividing actual wage with the price level. Thus, it shows the inflation
3GREAT RECESSION IN USAadjusted income of the workers. In phase of rising, declining real wage means workers are notcompensated for price rise and hence experienced a decline in purchasing power (Heyes, Lewisand Clark 2014). Recession in USA (2007-2009)The National Bureau of Economic research identified ten recessions to be taken placefrom 1948 to 2011. Among them, the most severe recession is that occurred between 2007 and2009 (bls.gov 2017). The economic condition during this time is reflected in differentcomponents of economy.UnemploymentA highly recognized indicator of recession is rising unemployment rate in the economy.Recorded unemployment rate in December 2017 was 5.0 percent. The unemployment rate wassame or even at a lower rate in previous 2-3 years. The recession ended up with anunemployment rate of 9.5 percent. In the month, succeeding end of the recession unemploymentrate picked up to the 10.0 percent (aeaweb.org 2017).Figure 1: Unemployment rate in US from 1948-2011(Source: Bls.gov, 2017)
End of preview
Want to access all the pages? Upload your documents or become a member.
Related Documents
(Doc) The Great Recession in UKlg...
|7
|1003
|133
Macroeconomics: Economic Events and Policies from 2000 to 2010lg...
|20
|1391
|487
Global Financial Crisis of 2007: Reasons and Impactslg...
|11
|2681
|417
Macroeconomics Power Point Presentation 2022lg...
|15
|609
|15
3312AFE: Macroeconomic Policy Analysislg...
|19
|3122
|61
Cause and Effects of the 2022 Recession in Canada Applicationlg...
|8
|1952
|26