The Great Recession's Impact on the United States and India

The great recession had different impacts on various countries and states. Low-income nations like Ethiopia and Uganda showed significant growth despite the downturn, while middle-income countries were severely affected. The United States labor market was impacted by high unemployment rates, with a missing link between demand and supply of employees. Financial analysts argue that unemployment benefit policies are responsible for high unemployment rates. The great recession led to an enormous impact on the entire world, including shortage of capital, decline in demands, and decrementing rate of growth of the economy.

Running Head: THE GREAT RECCESSION 1
The Great Recession
Student’s Name
Institutional Affiliation

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Introduction
At the finish of the year 2007, a recession occurred in the United States of America (Cetorelli, &
Goldberg, 2012). The author (Hurd, & Rohwedder, 2010) recognized that a healthy economy
would experience a future season of slow growth, high growth or even no growth at all. In
accordance to (Eisner, & Pieper, 1984) economy is required to manifest both contraction and
expansion to make the economy as healthy as possible. After the contracting period has
dominated for a long period, for instance not less than six months in a row or two successive
quarters of a year the economy is worth being considered as a recession. According to (NBER,
2010) National Bureau of Economic Research (2010) found recession and referred to it as "a
significant decline in economic activity spread across the economy, lasting more than a few
months, normally visible in the real gross domestic product (GDP), real income, employment,
industrial production and wholesale-retail sales."
The recession in the United States in the past has resulted in global financial crisis smashing
consumers and business assurance in several countries like Japan, China, the European Union
not excluding the Asian countries in accordance to (Baldwin, 2009). Due to these adverse
effects, it has been branded a name which refers to it as the "Great Recession" that has been the
reason behind the financial breakdown in the United States. Also, this breakdown spread-out
very fast impacting almost every place in the world as (Bell, & Blanchflower, 2011) states. This
Great Recession had emerged to be the most dangerous economic slump since the world
experienced the famous depression the world underwent after the World War II (Eichengreen, &
O’rourke, 2009)
As per economists, the incident of the great recession was brought about by the sudden bursting
of house bubble in the United States of America. They claim that this house bubble bursting was

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instigated by speedy growth of indecorous control on subprime mortgages (Cetorelli, &
Goldberg, 2012). The great slump's occurrence has developed and shown the accuracy of
Greenspan's forecast. Greenspan was the former chairman of Federal Reserve forecasting the
United States has 1/3 chances or the possibility of attaining a recession at the completion of the
year 2007(Koo, 2011). In an exercise to obtain proper insight of the great recession into details,
grounds or roots and the repercussions of the downturn will be evaluated and analyzed under
following topics or sub-headings.
Roots of the Great Recession
A lot of challenges had faced the United States at that moment of recession not excluding high
record levels of the debts of the government, a plummeting dollar, forthcoming threats of a
recession, banks which are at the edge of bankruptcy, a money market which is frozen and a
stock market which is falling (Koo, 2011). In accordance to (Jenkins, Brandolini, Micklewright,
& Nolan,2012) factors like global imbalances, rates of interests, the perception of risks, and even
regulation financial system highly impacted the global financial crisis.
Housing crash
United States Housing market is a key factor of consumers expenditure and the degree of
economic growth (). Several determinants affect the house price making it increase much rapidly
the incomes of the consumers, and therefore it became. Therefore, it became the global financial
crisis that resulted in the extra valued assets (Koo, 2011). (Jenkins, Brandolini, Micklewright, &
Nolan,2012) Discussed that United States House Prices were raised very fast up to 2006 and
after that undergone a decline of house prices. At a time, a house price decrements to rectify an
imbalance, it contained a meaningful effect on the consumers who were using their expenditure

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where individuals are not able to remortgage to get an excess capital for use (Bell, &
Blanchflower, 2011).
Sub-Prime Mortgage Burst
No single regulation of subprime mortgages existed of which the mortgages industries could sell
their mortgages having not considered if the consumers could be in a position to pay back
according to (Taylor, Proaño, de Carvalho, & Barbosa, 2012). (Bell, & Blanchflower, 2011)
Approximated the worth of the United States subprime mortgages to be $1.3 trillion by March
2007, though there existed more than 7.5 million first-alien mortgages unsettled. The reason
behind this was that the subprime mortgage was speared to almost 20% of overall mortgage
originations throughout the pinnacle of the United States housing bubble . The great fraction of
the subprime mortgages was brought about by enormous foreclosures, and therefore it highly
impacted the impartial mortgage brokers and institutions which were not protected under the
Community Reinvestment Act (Jenkins, Brandolini, Micklewright, & Nolan,2012). Therefore, it
was circuitously affected leading to a sluggish growth and went ahead to falling on consumer
expenditure in addition to their investment (Bell, & Blanchflower, 2011).
Low rate of interest
The United States monetary authorities had attuned the rates of interest at an unparalleled level
which resulted in a debt-financed consumption prosperity, in turn, causing a boost in housing
bubble this is in accordance to the economists (Jenkins, Brandolini, Micklewright, &
Nolan,2012). In the same manner, some of the economists contended that the rates of interest in
the United States remained too low for a very long duration. It endured at 1 % in the year 2003
and 2004 which stimulated the great recession. Monetary policies of the United States of

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America has not succeeded in undertaking the extra valued asset bubble and concurrently took
part in the fast growth of the sub-marine mortgages, (Taylor, Proaño, de Carvalho, & Barbosa,
2012) criticized.
Credit crunch
High sub-marine mortgage evasions in the United States had led to the credit crunch which
meant an unexpected shortage of funds leading to decrements in the loans present as commented
by (Eisner, & Pieper, 1984). In accordance to (Taylor, Proaño, de Carvalho, & Barbosa, 2012)),
several investments banks and even commercial banks were often faced with great losses
because of most perilous mortgage loans. For this reason, most banks (commercial banks and
investment banks) were very hesitant to give loans to anyone and even to any other bank having
a shortage of fund in the money market (Eisner, & Pieper, 1984). Deficiency of liquidity in the
finance industry had led to the act of borrowing to be more hard and costly that had led to a
reduced consumer expenditure and investment as per (Taylor, Proaño, de Carvalho, & Barbosa,
2012).
Budget deficit and national debt
The debt for the United States government stood at 65% of the Grand Domestic Product for the
year 2007 and even became worse after that the when the liabilities for pension were
encompassed in accordance to (Alesina, & Tabellini, 1990). Considering that huge deficit, the
United States Government remained with less opportunity for the expansionary fiscal policy
bearing in mind that the population analysis conducted against the financial stability and the
level of economic cycle degenerated the deficit (Henning, & Kessler, 2012). (Taylor, Proaño, de
Carvalho, & Barbosa, 2012) Commented that the United States deficit had resulted to

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complexities in gaining capital flow since the investors from Asia who knew of the deficit of the
United States had speeded down the flow of capital to the united states and took part in dollar
devaluation. Therefore, it showed that a basic imbalance between the domestic production and
consumption which had turned to be a restraint for economic growth in future.
Devaluation of the dollar.
Basic economic theory states that a decrement in the exchange rates will ultimately assist to
increase the level of exports and trigger the growth in the export sector according to (Eisner, &
Pieper, 1984). The decrementing dollar had resulted in cost-push fluctuation and reduction in the
living standards implying an increase in the cost of consumer goods resulting to a minimal
expenditure power of people (Alesina, & Tabellini, 1990). (Jenkins, Brandolini, Micklewright, &
Nolan,2012) commented that a reduction in the value of the dollar was brought about the less
competitiveness of the United States in comparison with its trading member states.
Repercussions of the great recession
The economies across the world experienced catastrophes upon the fall of the United States
recession in the year 2007. Countries like Eastern and Central Europe, and the Commonwealth of
Independent countries (generally middle -income countries) were intensively impacted
meanwhile nations like Ethiopia and Uganda had a chance to grow immensely in spite of the
downturn (Henning, & Kessler, 2012).
(Bell, & Blanchflower, 2011) Stated that even though several low-income nations have escaped
from the recession, the countries have gone through sluggish-growth in the economy because of
the negative implications of poverty. (Alesina, & Tabellini, 1990) argued commenting that the
smaller and more open the economy, the stronger the hit from the great recession while the larger

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the upcoming economy of a country the more the chances of survival through the support gained
from the government spending and domestic demand. (Jenkins, Brandolini, Micklewright, &
Nolan,2012) Recognized that India and China could recover faster than other countries from the
great recession.
Stated that the great recession had resulted in different impacts on various nations and states.
After that, an analytical investigation concerning the consequences of the great recession in the
United States and India are outlined below.
The united states
The United States labor market received effect caused by the great recession according to (Katz,
2010, April). (Hurd, & Rohwedder, 2010) Records that even though the government had attuned
the rate of inflation leading to the growth of the economy by 2009 Quarter 3 at 2.2%, 2009
Quarter 4 at 5.6% and 2010 Quarter 1 at 2.7%, the rate of joblessness had exceedingly remained
high. The rate of unemployment had increased in June 2009 where it was 9.5% to 10.1% in
October 2009. In June 2010, it reduced to 9.5%( Hurd, & Rohwedder, 2010). The missing link
between demand and supply of employees was displayed in the statistics like the rate of hiring,
and the rate of layoff as the rate of unemployment can be shown by a Beveridge curve (Bell, &
Blanchflower, 2011). (Hurd, & Rohwedder, 2010) commented that with the present mean
number of a job opening in April and May, the jobless were expected to be 10.4million in place
of 15 million as earlier anticipated.
Arguments from several financial analysts stated that the unemployment benefit policies are to
be accountable for the strangely high rates of unemployment (Katz, 2010, April). ()
Approximated that the comprehensive unemployment benefits may have augmented between

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0.5% and 1.8% of the rate of unemployment. Author (Taylor, Proaño, de Carvalho, & Barbosa,
2012) commented that there exists a fervent possibility of high rates of unemployment to stay
permanent because most individuals who have stayed out of work for a considerable period have
turned to be less competitive and less productive in the job market. The high rates of
unemployment are inclined to increment the stage of structural unemployment in a case of
presence of weak policy. Therefore, inflation will eventually increase the upper rates of
unemployment than ever.
Conclusion
Every single country in the age of globalization is impacted by rising and fall in the work
economy where a country can never remain independent (Jenkins, Brandolini, Micklewright, &
Nolan,2012). The great recession has led to an enormous impact on the entire world for instance
shortage of capital, the decline in demands, decrementing rate of growth of the economy in
addition to high levels of unemployment (Taylor, Proaño, de Carvalho, & Barbosa, 2012). On
the contrary, it can aid in the transformation of businesses viewpoint or the country for the
future. Even though the great recession has slowed down or depreciated the process of growth, it
has been a motivation to the generation of ideas and approaches triggering the growth of the
economy and keeping the stability of the market to improve its competitiveness in the world.

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