Tag: recession

The global financial crisis 2008, the great recession

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The global financial crisis 2008, the great recession

 

The global financial crisis started in the year 2007 and worsened in the year 2008. The period was characterized by a sharp decline in the global economy. The crises resulted in devastating effects to individuals and firms. Many people lost jobs, houses and many were rendered bankrupt especially in the United States. The crises were mainly stemmed by the rogue industry who took advantage of the legal situation. Numerous corrupt and unacceptable deals between the financial institutions and investors transpired almost bringing the world economy to a standstill. The crises is said to be greater than the great depression (Foner, Give me liberty)

The crisis can be attributed to the poor government financial policies especially the United states government. The issue of deregulation in the financial sector is to blame for the economic setback that was experienced in the whole world (Ferguson, inside job, 2010). This resulted in the failure of numerous major financial institutions around the globe an example being the Lehman brothers. 

In the 1940s until 1980s, the US government regulated the financial industry (Ferguson, Inside Job). After this period deregulation of the industry was embraced. The giant firms took advantage of the situation. Banks began selling collateralized debt obligations (CDOs) to the investors. Numerous CDOs were backed by subprime mortgages. Rating agencies also blundered when they gave many CDOs AAA rating. This resulted in many investors betting their Credit Default Swaps (CDSs) against CDOs they did not own. The collapse of the CDOs market happened and many investment banks were left with hundreds of billions of dollars in loans they could not repay (Ferguson, inside job, 2010). If the US government had introduced strict regulation in the financial industry the situation could not have been the same.
 

References

 

Foner, E. Give me liberty: An American history (volume 2). New York: W. W Norton and Amp Company. 2007

 

Foner, E. (20). Voices of freedom:  A documentary history (volume 2, 3rd ED). New York: W. W Norton and Amp Company. 2006.

 

Ferguson, C. Inside job: the systemic corruption of the United States. New York. 2010.

 

 

 

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Respond to the great recession

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First, watch the five videos at https://www.mruniversity.com/courses/principles-economics-macroeconomics (Links to an external site.)Links to an external site. under “Business Cycles Theories.”

then, in 4 to 5 sentences, explain which school (Keynesians, Monterastists, Austrians, or Real Business Cycles) you think best explains the Great Recession AND why.

 

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During the Great Recession like any other

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During the Great Recession like any other economic downturns as unemployment rises aggregate income declines causing a major decline in tax collections.On the other hand with the rise in unemployment spending on safety net programs rise. So there are not too many good options available to resort the health of the national economy. It will be very difficult to defend cuts in the federal government programs and especially the programs geared to sustain the minimum of the standard of living for the recent poor.So government needs to increase its borrowing.Deficit spending refers to government spending exceeding what it brings in federal income and corporate taxes during a certain period. Deficit spending hence increases government debt.Most economists accept that deficit spending is desirable and necessary as part of countercyclical fiscal policy.In such a case government increases its borrowing and hence its deficit to compensate for the shortfall in aggregate demand.This is derived from Keynesian economics and has been the mainstream economics view. Following John Maynard Keynes many economists recommend deficit spending to moderate or end a recession especially a severe one. When the economy has high unemployment an increase in government purchases creates a market for business output creating income and encouraging increases in consumer spending which creates further increases in the demand for business output. (This is the multiplier effect). This raises the real gross domestic product (GDP) and the level of employment and lowers the unemployment rate. Government borrowing under such circumstances increases the demand for borrowing and thus pushes interest rates up. Rising interest rates can crowd out (discourage) fixed private investment spending canceling out some of the demand stimulus arising from the deficit
Write an essay analyzing the advantages and disadvantages of deficit spending and the effects of federal government borrowing on the economy i.e. the crowding out effect.

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Policy recommendations would you make to deal with a recession?

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Policy recommendations would you make to deal with a recession?.

If you were an economic advisor to both the President and the Chair of the Federal Reserve Board, what Fiscal Policy and Monetary Policy recommendations would you make to deal with a recession?

Textbook: Review all chapters (Weeks 1-7) Lesson: Week 1-7 Minimum of 4 scholarly sources Introduction There are several problems that every economy must contend with. The culmination of these problems is often a recession or an inflation, each of which requires an extensive policy prescription. A recession is technically defined as two consecutive periods of negative growth in real GDP. The National Bureau of Economic Research (NBER) which dates U.S. recessions defines recession as “a significant decline in economic spread across the economy, lasting more than a few months, normally in real GDP, real income, employment, industrial production and wholesale-retail sales.” (NBER, 2008, para. 2). Inflation is measured by the Bureau of Labor Statistics (BLS) as an increase in the overall price in the economy. The inflation rate is the percentage change in the prices of goods and services from one period to the other. To measure the percentage change in the general level of prices, economists use the GDP deflator method or the Consumer Price Index (CPI) method. It is important to note that as the general level of prices rise, the purchasing power – or value – of money diminishes, and as the general level of prices decline, the value or purchasing power of money rises.

When an economy is going through recessionary or inflationary periods, two key policy prescriptions are used to deal with either problem are Fiscal Policy and Monetary Policy. Fiscal Policy is often initiated by the executive branch of government and approved by the legislative branch of government. The main tools of Fiscal Policy are Taxes and Government Spending. Monetary Policy, on the other hand, is conducted by the Federal Reserve Board. The main tools of Monetary Policy are Required Reserve Ratio, Discount Rate, and Open Market Operation. A recessionary gap (see Figure 1) occurs when the full employment equilibrium in an economy falls short of potential GDP. Below full employment macroeconomic equilibrium graph with price level on y-axis and real GDP on x-axis Figure 1: Below Full Employment Macroeconomic Equilibrium. Reprinted from Bade & Parkin (2018, p. 545). Activity Instructions For this assignment, complete the following:

If you were an economic advisor to both the President and the Chair of the Federal Reserve Board, what Fiscal Policy and Monetary Policy recommendations would you make to deal with a recession? In the literature on Health Economics, there is a significant amount of research on the impact of the Great Recession (2008-2009) on the nursing profession. If you were the Health Policy Advisor to the President, what specific recommendations would you make to the President to minimize the effects of recessions on the nursing profession? In the implementation of Fiscal and Monetary Policies, discuss the limitations of these policies and explain how the limitations are likely to affect the effectiveness of your recommendations. Note: In making the recommendations, provide clear and concise channels of transmission of the policy from its implementation to its effect on Aggregate Demand or Aggregate Supply. Providing channels of transmission shows the ripple effect of an event on one or more variables in the process of achieving an ultimate Macroeconomic objective. Example Sample Question: What is the effect of an increase in U.S. Exports? Sample Answer: An increase in U.S exports will increase Business Investments (I) and Household Consumption (C). The increases in consumer spending and Business Investments will increase Aggregate Demand (AD) which will shift the AD curve to the right. The rightward shift in the AD curve, assuming the Aggregate Supply curve does not shift, will cause an increase in the general level of prices and an increase in real GDP. Before you answer the question, identify the four phases of the Business Cycle and indicate which of the phase is associated with a recession. Writing Requirements (APA format) Length: 3-5 pages (not including title page or references page) 1-inch margins Double spaced 12-point Times New Roman font Title page References page (minimum of 4 scholarly sources) Grading The activity is will be graded using the Written Analysis Grading Rubric.

Policy recommendations would you make to deal with a recession?

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If you were an economic advisor to both the President and the Chair of the Federal Reserve Board, what Fiscal Policy and Monetary Policy recommendations would you make to deal with a recession?

Posted on | by KN Simon

If you were an economic advisor to both the President and the Chair of the Federal Reserve Board, what Fiscal Policy and Monetary Policy recommendations would you make to deal with a recession?.

 

Textbook: Review all chapters (Weeks 1-7) Lesson: Week 1-7 Minimum of 4 scholarly sources Introduction There are several problems that every economy must contend with. The culmination of these problems is often a recession or an inflation, each of which requires an extensive policy prescription. A recession is technically defined as two consecutive periods of negative growth in real GDP. The National Bureau of Economic Research (NBER) which dates U.S. recessions defines recession as “a significant decline in economic spread across the economy, lasting more than a few months, normally in real GDP, real income, employment, industrial production and wholesale-retail sales.” (NBER, 2008, para. 2). Inflation is measured by the Bureau of Labor Statistics (BLS) as an increase in the overall price in the economy. The inflation rate is the percentage change in the prices of goods and services from one period to the other. To measure the percentage change in the general level of prices, economists use the GDP deflator method or the Consumer Price Index (CPI) method. It is important to note that as the general level of prices rise, the purchasing power – or value – of money diminishes, and as the general level of prices decline, the value or purchasing power of money rises. When an economy is going through recessionary or inflationary periods, two key policy prescriptions are used to deal with either problem are Fiscal Policy and Monetary Policy. Fiscal Policy is often initiated by the executive branch of government and approved by the legislative branch of government. The main tools of Fiscal Policy are Taxes and Government Spending. Monetary Policy, on the other hand, is conducted by the Federal Reserve Board. The main tools of Monetary Policy are Required Reserve Ratio, Discount Rate, and Open Market Operation. A recessionary gap (see Figure 1) occurs when the full employment equilibrium in an economy falls short of potential GDP. Below full employment macroeconomic equilibrium graph with price level on y-axis and real GDP on x-axis Figure 1: Below Full Employment Macroeconomic Equilibrium. Reprinted from Bade & Parkin (2018, p. 545). Activity Instructions For this assignment, complete the following:

If you were an economic advisor to both the President and the Chair of the Federal Reserve Board, what Fiscal Policy and Monetary Policy recommendations would you make to deal with a recession? In the literature on Health Economics, there is a significant amount of research on the impact of the Great Recession (2008-2009) on the nursing profession. If you were the Health Policy Advisor to the President, what specific recommendations would you make to the President to minimize the effects of recessions on the nursing profession? In the implementation of Fiscal and Monetary Policies, discuss the limitations of these policies and explain how the limitations are likely to affect the effectiveness of your recommendations. Note: In making the recommendations, provide clear and concise channels of transmission of the policy from its implementation to its effect on Aggregate Demand or Aggregate Supply. Providing channels of transmission shows the ripple effect of an event on one or more variables in the process of achieving an ultimate Macroeconomic objective. Example Sample Question: What is the effect of an increase in U.S. Exports? Sample Answer: An increase in U.S exports will increase Business Investments (I) and Household Consumption (C). The increases in consumer spending and Business Investments will increase Aggregate Demand (AD) which will shift the AD curve to the right. The rightward shift in the AD curve, assuming the Aggregate Supply curve does not shift, will cause an increase in the general level of prices and an increase in real GDP. Before you answer the question, identify the four phases of the Business Cycle and indicate which of the phase is associated with a recession. Writing Requirements (APA format) Length: 3-5 pages (not including title page or references page) 1-inch margins Double spaced 12-point Times New Roman font Title page References page (minimum of 4 scholarly sources) Grading The activity is will be graded using the Written Analysis Grading Rubric.

If you were an economic advisor to both the President and the Chair of the Federal Reserve Board, what Fiscal Policy and Monetary Policy recommendations would you make to deal with a recession?

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