The Great Recession largely impacted various sectors in the United States since it involved a decline in economic activity. The financial crisis was experienced due to deregulation in the financial industry, whereby banks were engaging in hedge fund trading. Real gross domestic product (GDP) fell, and many sectors struggled due to the financial crisis (Born et al., 2018). Various individuals have also analyzed the economic name for a recession and its influences on the development of a country. Typically, it is the decline in economic activity impacting the GDP, employment, industrial production, and it usually lasts some months. This report focuses on the demand-side Policies and the Great Recession of 2008 and how they helped restore economic growth and reduce unemployment.
Fiscal Policies
Fiscal policies have been introduced to ensure that economic stability is achieved. Typically, they are measures that the government presents to ensure that its spending levels and tax rates can lead to economic growth. In most cases, tax rates impact the economy since money acquired is used to develop various sectors, improving the performance of a nation (Chugunov & Pasichnyi, 2018). For instance, taxes can be used to develop the agriculture sectors and improve international trades involving the export of the products. Therefore, fiscal policies have been used by the government to adjust its spending and develop the economy. The government also uses fiscal policy to aggregate the demand for goods and services since they impact economic growth. The government ensures that it analyzes different goods and services trends and formulate a plan to guarantee that they do not lead to a financial crisis.
Unemployment is another issue that primarily impacts the economy of a state. Therefore, the government has ensured that employment opportunities are developed to limit the challenges experienced due to the lack of job opportunities. The fiscal policies guarantee that all industries are working effectively and can create more opportunities for individuals (Chugunov & Pasichnyi, 2018). Moreover, fiscal policy can decrease unemployment by increasing aggregate demand and financial growth. Inflation is another aspect that has been experienced in many countries. Thus, budgetary policies have been used to combat inflation since the government increases taxes and reduces spending as they can lead to inflation. Therefore, fiscal policies essentially involve tax cuts and increased government spending.
Monetary Policies
Monetary policies can also have a significant impact on the economic growth of a country. The procedures entail the actions exercised by the central bank and have been termed as microeconomic policies. Open market operations, discount rate, and reserve requirements are the three instruments of monetary policy (Dahlhaus, 2017). These aspects are primarily part of economic growth in a country.
For instance, market operations involve the various activities involved in different business, such as importing and exporting of goods. Monetary policies control international trades since they affect how the nation exercises its transactions with other states. These operations can lead to issues such as inflation and poor economic growth. Therefore, the government has used monetary policies to ensure that market operations are monitored and do not lead to a financial crisis.
Monetary policies influence interest rates since they can push the spectrum of the discount rates either higher or lower. Lowering the interest rates has been exercised to stimulate economic growth since more people can borrow funds from the banks and invest in various sectors (Dahlhaus, 2017). Consequently, investments create more job opportunities and increased revenues due to taxation.
Thus, economic growth is likely to be experienced when interest rates are lowered. Nonetheless, monetary policies ensure that the discount rates are not too low to prevent excessive borrowing, leading to inflation. Therefore, the rates have to be analyzed, and banks should guarantee that the discounts do not lead to economic issues. The high supply of money is a significant determinant of employment, cost of debt and consumption levels. Thus, monetary policies have also been of great significance as they limit economic crisis.
Conclusion
The use of fiscal and monetary policies during the Great Recession of 2008 essentially helped restore economic growth and reduce unemployment. In this case, the guidelines led to tax cuts allowing people to invest and create job opportunities. The government also increased unemployment insurance to ensure that the financial crisis was limited and did not spread further. Increased quantity of loans to enable more people to invests in various sectors. The approach was also used to fight unemployment in the country. Many people acquired jobs in the industries, increasing economic growth and limiting the financial crisis.
The shifting of aggregate demand to the right was also exercised using the policies since interest rates were reduced. Many people ventured into different businesses that contributed to the country’s economic growth. The supply of money by the banks was also monitored using the monetary policies whereby they ensured that inflation was controlled. Market operations were largely controlled using fiscal policies since different industries were encouraged to analyze the demand for goods and services and guarantee that the market trends did not lead to a further economic crisis. Therefore the fiscal and monetary policies have a significant impact on the economic growth of a country.
References
Born, B., Breuer, S., & Elstner, S. (2018). Uncertainty and the great recession. Oxford Bulletin of Economics and Statistics, 80(5), 951-971. Web.
Chugunov, I. Y., & Pasichnyi, M. D. (2018). Fiscal policy for economic development. Scientific bulletin of Polissia, 1(1 (13)), 54-61. Web.
Dahlhaus, T. (2017). Conventional monetary policy transmission during financial crises: An empirical analysis. Journal of Applied Econometrics, 32(2), 401-421. Web.