Demand-Side Policies and the Great Recession of 2008

Demand-side Policies

 and

the Great Recession of 2008

Weilun Xu

APUS

ECON102

Dr. Richard Leiter

What is the economic meaning of a recession?

Economic recession is a period of general economic decline and is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. Generally, a recession is less severe than a depression. The blame for a recession generally falls on the federal leadership, often either the president himself, the head of the Federal Reserve, or the entire administration. (Study, 2016)

The recession always measures as GDP method. And it happens around six months or longer, usually is defines as more that the continuous two quarters. It will influence the market high unemployment rate, default wages, and decrease the sales. Usually it will no longer than one-year period once the market has the solutions to deal with it. Otherwise, it might stay longer. As long as the theory comes by the most of people. The recession has been defined as the normal phenomenon in the market cycle.

Fiscal policies

Fiscal policies are based on the concepts of the economist John Maynard Keynes, and work independent of monetary policy which tries to achieve the same objectives by controlling the money supply (Businessdictionary,2016). Usually the fiscal policies are solving the problems like to control the low unemployment during the recession in the economic cycle, to lower the inflation, or to make economic gross. Government usually used the the fiscal policies to control high speed economy gross with the high rate taxes.

During the recession 2008 in America, the reports wrote by Alan Viard mention that “Fiscal policy is another available tool. A variety of tax and spending measures can stimulate aggregate demand by increasing the amount of spending that households and firms wish to do at any given interest rate. An increase in government purchases of goods and services directly increases spending” (Vraid, 2009). Here, the fiscal policies are being used as the tools to find out the maximum economic potential in the US market cycle. On the other hand, it is the tools to simulate the American economy. The government are more focus on the how to make change for the low unemployment prefer to change the policy about the loan policy. Government believe once the people has the job, they can payback the loan to the banks and afford their bills. But, the effects of the bank-risking show this way is not work that well.

Monetary policies

Economic strategy chosen by a government in deciding expansion or contraction in the country's money-supply. Monetary policy plays the dominant role in control of the aggregate-demand and, by extension, of inflation in an economy(Businessdictionary,2016). Usually, the monetary policy is present as to buy or sold the debt, to change the rate of the loans, or to change the interest rate based on fiscal policy. In the most of the countries, the monetary policy is under the control by the central bank, or other government community can support. Those party are make the decision about the change of rate of the supply. The purpose to use the monetary policy is to increase the interest rate, or make sure the money has saving in the vault are under the control. And the monetary policy is measured by the GDP. To deal with the recession 2008, the American government used the monetary policy as the tool to changing the financial situation by make the difference of the size and composition of the Federal financial statement. Basally, the government changing the money quantity in order to have time deal with the recession. The monetary policy is not the final or only solution for the recession, it is just a sample reaction time for the country, slow but workable.