Great Recession

Definition

The Great Recession was a severe economic downturn that occurred in the late 2000s, marked by a significant decline in economic activity, high unemployment, and financial instability. This event had far-reaching implications across various economic indicators and policies.

5 Must Know Facts For Your Next Test

1. The Great Recession began in December 2007 and lasted until June 2009, making it the longest and most severe economic downturn since the Great Depression.
2. The primary causes of the Great Recession were the bursting of the U.S. housing bubble, subprime mortgage crisis, and the subsequent financial crisis.
3. During the Great Recession, real GDP in the United States declined by approximately 4.3%, and the unemployment rate peaked at 10%.
4. In response to the Great Recession, the Federal Reserve implemented expansionary monetary policies, such as lowering interest rates and engaging in quantitative easing, to stimulate the economy.
5. Fiscal policy measures, including tax cuts and increased government spending, were also used to combat the effects of the Great Recession and promote economic recovery.

Review Questions

• Explain how the Great Recession impacted the tracking of real GDP over time.
  • The Great Recession led to a significant decline in real GDP in the United States, which is a key measure of economic activity tracked over time. During this period, real GDP fell by approximately 4.3%, indicating a severe contraction in the overall economy. The sharp drop in real GDP was a clear indication of the depth and severity of the economic downturn, and tracking this metric over time was crucial for policymakers and economists to understand the magnitude of the recession and the pace of the subsequent recovery.
• Describe the role of monetary policy in addressing the economic outcomes of the Great Recession.
  • In response to the Great Recession, the Federal Reserve implemented a range of expansionary monetary policy measures to stimulate the economy. This included lowering interest rates to near-zero levels and engaging in quantitative easing, which involved the central bank purchasing large quantities of government bonds and other financial assets to increase the money supply and provide liquidity to the financial system. These monetary policy actions were aimed at reducing borrowing costs, encouraging investment and consumer spending, and ultimately promoting economic recovery. The effectiveness of these policies in mitigating the negative impacts of the Great Recession was a crucial factor in shaping the overall economic outcomes.
• Analyze how fiscal policy was used to fight the recession, unemployment, and inflation during the Great Recession.
  • In addition to the Federal Reserve's monetary policy interventions, the U.S. government also employed fiscal policy measures to combat the effects of the Great Recession. This included implementing tax cuts to increase disposable income and stimulate consumer spending, as well as increasing government spending on infrastructure projects and social programs to create jobs and support economic activity. These fiscal policy actions were intended to boost aggregate demand, reduce unemployment, and mitigate the recessionary pressures on the economy. However, the effectiveness of these fiscal policy tools in addressing the complex challenges posed by the Great Recession, such as high unemployment and potential inflationary pressures, required careful coordination and implementation by policymakers to achieve the desired economic outcomes.

Related terms

Recession:

A recession is a period of temporary economic decline, typically characterized by a decrease in GDP, rise in unemployment, and reduced consumer spending.

Financial Crisis: A financial crisis is a situation where the value of financial institutions or assets drops rapidly, often leading to a broader economic downturn.

Monetary Policy:

Monetary policy refers to the actions taken by a central bank, such as the Federal Reserve, to influence the money supply and interest rates to achieve economic goals.