Macroeconomics Assignment: Analysis of US Economy and Crisis Response

This macroeconomics assignment analyzes the US economy, particularly focusing on the period between 2001 and 2010, with a special emphasis on the 2008 financial crisis. The assignment explores the concepts of autonomous expenditure and its impact on real GDP, considering the factors that led to a decline in autonomous expenditure during the crisis, such as reduced household consumption and investment due to financial system disruptions. Furthermore, the assignment examines the government's response through fiscal and monetary policies, including an $800 billion fiscal stimulus package and its effects on real GDP growth. The analysis includes the impact of increased government spending on real GDP, referencing relevant academic sources to support the arguments. The assignment provides an overview of the economic challenges and the policy measures undertaken to mitigate the effects of the crisis.

Running Head: MACROECONOMICS
Macroeconomics
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Table of Contents
Autonomous expenditure.................................................................................................................2
Stabilization Policy..........................................................................................................................2
References........................................................................................................................................4

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Autonomous expenditure
The decade 2001 to 2010 is very crucial for the economy of United States. The economy
experienced a severe depression in 2008 causing change in macroeconomic state. Equilibrium in
an economy is determined where actual spending and planned spending are in a balance state.
Real GDP = Planned spending = Autonomous spending + marginal propensity to spend × real
GDP
Autonomous spending is the part of aggregate expenditure that is associated with zero
income level. During financial crisis in 2008 two important components causing a decline in
autonomous expenditure are investment and consumption. Household consumption decreases
because of a sudden fall in housing price reduced wealth of household. The disruption caused in
the financial system reduced investible fund in the economy (Bordo & James, 2014). There is a
multiplier effect on real GDP. The real GDP changes through a multiplicative process.
Change in Real GDP
1
(1−Marginal Propensity¿ spend )∗Change∈autonomous expenditure
Stabilization Policy
In the phase of crisis several policies were undertaken. Government had provided fiscal
and monetary policy stimulus to counteract recession. A package of fiscal stimulus was given
containing $800 billion of government spending and a decrease in the tax rates. The increased
government spending was channeled in different forms such as spending on goods and services,
transfer payment, road project and different construction projects in United States. The impact of

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increased government spending on real GDP is change in spending times the multiplier. The real
GDP growth in US was between 1.2 percent and 3.2 percent (Claessens et al., 2014).

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References
Bordo, M., & James, H. (2014). The European crisis in the context of the history of previous
financial crises. Journal of Macroeconomics, 39, 275-284.
Claessens, S., Kose, M. M. A., Laeven, M. L., & Valencia, F. (2014). Financial crises: Causes,
consequences, and policy responses. International Monetary Fund.