Macroeconomic Policies And Great Recession

Running head: MACROECONOMIC POLICIES AND GREAT RECESSION OF 2008 IN THE
US
Macroeconomic Policies and Great Recession of 2008 in the US
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MACROECONOMIC POLICIES AND GREAT RECESSION OF 2008 IN THE US1
Introduction
Great Recession of 2008 is the most severe recession occurred in the recent times.
Recession is a phase of economy that occurs when business cycle contracts and economic
activities decline. During recession, the output of an economy falls drastically and along with the
unemployment rate rises due to high rate of job loss, Income individuals fall, consumption
demand decreases and thereby inflation rate falls to low level. There is fall in both consumer and
business confidence. This essay aims to discuss the demand side policies implemented by the US
to fight the Great Recession and their impact on the economy of the country.
A brief discussion of fiscal policies
The fiscal policies that are used during economic crisis are called expansionary fiscal
policy. Two tools that are used in implementation of expansionary fiscal policy and they are cut
in tax rate and increase in government expenditure (Arpino & Obydenkova, 2019). The first
expansionary fiscal policy used by the US to curb the impact of Great Recession of 2008 was cut
is tax ranging from $300 to $1200. The tax cut policy was implemented under the Economic
Stimulus Act 2008. However, the tax cut was applicable for middle income and low income
countries. However, this policy did not work as per expectation (Blanchard & Summers, 2019).
The policy was introduced such that disposable income of people increases and they spend more
which would contribute in improving the economy. In contrary, that did not happen as most of
the beneficiaries had paid their debt with the excess money and many saved instead of spending
(Stockhammer, Qazizada, & Gechert, 2019). Least number of beneficiaries did actually spend
but it was not enough to boost economy sufficiently to push it out of the impact if recession. The
expansionary policy that was taken in 2009 impacted the economy of the country effectively
because due to the policy the real GDP in that year grew at an average rate of 3% in 2010. Under