Use of Monetary Policy and Fiscal Policy During The Great Recession

This policy is results in faster results to speed up the economy for the short term. Fiscal Policy is later used to develop a plan of yearly actions and is a long term way to stabilize the economy. The next idea to stabilize the economy is a theory called monetarism which is the belief that if government did not interfere with the market economy that employment would be high and inflation low. Followers believe the government is the reason of downturns such as the recent recession.

Leo: Before the end of his term, President Bush passed TARP. TARP was a program that increased government spending to buy all the garbage CDOs. This program involved $800 billion in government spending which was limited to $475 billion due to the Dodd-Frank Act (TARP Programs 1). President Obama continued using expansionary fiscal policy by passing the American Recovery and Reinvestment Act which increased government spending by $787 billion and lowered taxes (Amadeo 1).

Our economy is a machine that is ran by humans. A machine can only be as good as the person who makes it. This makes our economy susceptible to human error. A couple years ago the United States faced one of the greatest financial crisis since the Great Depression, which was the Great Recession. The Great Recession was a severe economic downturn that occurred in 2008 following the burst of the housing market. The government tried passing bills to see if anything would help it from becoming another Great Depression. Trying to aid the government was the Federal Reserve. The Federal Reserve went through a couple strategies in order to help the economy recover. The Federal Reserve provided three major strategies to start moving the economy in a better direction. The first strategy was primarily focused on the central bank’s role of the lender of last resort. The second strategy was meant to provide provision of liquidity directly to borrowers and investors in key credit markets. The last strategy was for the Federal Reserve to expand its open market operations to support the credit markets still working, as well as trying to push long term interest rates down. Since time has passed on since the Great Recession it has been a long road. In this essay we will take a time to reflect on these strategies to see how they helped.

President Obama has introduced a variety of fiscal policy changes during his presidency; some of his ideas, however, did little to strengthen the economy as they were intended to do. For example, in 2001, as President Bush had just entered office, he ushered a reduction of income tax rates in addition to other tax cuts for the middle class, through Congress. While these policies were initially quite slow in boosting the economy, the economic benefits eventually began to surface around 2003 and the economy did begin to exhibit stronger growth. However, President Bush’s tax policy was set with an “expiration date”, set by Congress through a budget process called “reconciliation”

The American Recovery and Reinvestment Act of 2009, otherwise known as the Stimulus Bill, was one of the first major pieces of legislation passed by the new Democratic Congress in 2009 and signed by newly inaugurated President Barack Obama. The legislation was an attempt to take the United States economy out of a major recession through federal spending. The motivation for this bill was the collapse of the housing market bubble and the mortgage crisis. A result of these problems was the decline of consumer and corporate credit, causing monetary liquidity in the economy. Obama argued that the economy needed a “jump-start” to get moving again; that being the stimulus of 2009. Drafts for the bill called for as little as $275 billion in spending,

After the crash of the market in 2008, Obama created the American Recovery and Reinvestment Act. The act was an “economic stimulus package”(Amadeo). The act would cost $787 billion. The act was meant to help families and small businesses instead of big business so that people in the United States could put trust into the system again which could stimulate spending and growth. For the purpose of stimulating demand, $260 million was put into cutting taxes, tax credits, and unemployment benefits (Amadeo). This included things like tax credit for first-time homebuyers, college tuition, and extended unemployment benefits. Stimulating demand and trust from the people was the biggest fitting puzzle piece of the stimulus package. The only way for an economy to flourish is when people get extra money that they can spend which would create growth in consumer

The 2008 Great Recession helped in restoring economic growth and lowered unemployment. Both fiscal and monetary policies are related ways use to increase the aggregate demand and aggregate supply. So, a shift in the aggregate demand curve to the right is expansionary fiscal policy meaning government spending has to exceed (2012). The G- component aggregate demand help to spend, allowing the C- component of aggregate demand to increase. On the other hand, the monetary policy promotes spending, investments, and lending increasing aggregate demand. During the downturn, the systems concentrate on growing demand total while the supply strategy looked for long-term growth in productivity and efficiency (Pettinger, 2012).

This act was a 120 billion dollar package that provided tax rebates to low and middle class households. The package also provided tax incentives to businesses to help stimulate investment. According to the research by Christian Broda and Jonathan A. Parker, they found that “households with low income or low wealth spent more than those with higher income or wealth. Households with annual income less than $15,000 increased their non-durable consumption, on average, by more than 6% per week when their rebates arrived, almost twice the response of the typical household.” (Christian Broda and Jonathan A. Parker). So their conclusion was that the “Economic Stimulus Act of 2008” was significantly successful to help households to boost their overall consumption by 2.4% by providing tax rebates, which temporarily stimulated family spending and mitigated economic pressures. From the view of business, the fiscal package assisted businesses in stopping the expenses of depreciable business assets. The businesses were able to use tax relief to increase their investments in new equipment. However, the Act was just providing temporary support for consumer spending and business investment. It did not have a long-lasting effect and was not sufficient enough to recover the U.S.

Fiscal policy: Given the breadth and depth of this recession, it was clear that the Treasury and the entire Obama administration had to take bold actions. In fact, right at the beginning, they were committed to a fiscal stimulus policy package which would be “substantial” enough to pull the economy out of the recession. The final stimulus package signed into law in 2009, the American Recovery and Reinvestment Act, was totaled $787 billion including about one-third tax cuts and one-third aid for states and the unemployed. Of the rest, labor health and education investment got 8%, and infrastructure investment got about 7%. It also included a large amount of government money to

The U.S government implemented policies that would adhere to the Keynesian model that suggest “that it is the responsibility of the government to help stabilize the economy” (Keynesian). Key actions the government and the fed took was quantitative easing, the stimulus and recovery act which were approved in 2009. Though the US has not completely recovered from the recession the government did effectively stabilized our

Every time we feel the onset of a recession or the economy starts to slow down, the government looks to restore the economic growth through different stimulus plans. The recession of 2008 was one example. When the housing bubble burst it caused panic with quick financial fallout, “the government took immediate measure to stimulate the economy back to normal and to restore confidence in the economic market” (Mitchell).

In other words, Monetary policy can be looked at as a policy that is money-based that involves banks that manage liquidity to create the growth of money. This includes the use of checks, cash, and credit that are used in the money market as primary ways of investing money. The most important of these is credit would be one of the most important tools used in the market because it consist of loans that are written promises to pay money back. Within every policy that every nation has there will always be an objective at hand. The U.S. Federal Reserve, like many other banks around the world, has clearly stated targets for their goals. They look for a certain percent of people who want to work but cannot find a job and the find that the rate of

In TARP’s program, $250 billion went to stabilizing banks, $77 billion was used to restart credit markets, $82 billion was utilized in stabilizing the auto industry, $70 billion was committed to steadying AIG, and $46 billion was used to help struggling families avoid foreclosure (https://www.treasury.gov/initiatives/financial-stability/TARP-Programs/Pages/default.aspx#). By July 2008, banks and other financial institutions reported losses of approximately $435 billion, and oil and food prices were at an all-time high. Government debt, inflation, and unemployment seemed to be ever-increasing, with debt peaking at $10 trillion at the end of 2008, inflation averaging 2.85%- the largest amount in almost 17 years, and unemployment surging to a 5 year high at 6.1% with approximately 605,000 total job losses

The 2007 global financial crisis, which was regarded as the most serious financial crisis since the Great Depression, still influences the global economy today, especially the U.S. economy. This paper mainly concentrates on the effect of fiscal policy during the recession by analyzing the size of the Keynesian multiplier. In particular, the core question is to measure the effect of the fiscal stimulus plan that amounted in an additional $20 billion in spending per quarter (measured in 2005 dollars) starting from the first quarter of 2008 to the last quarter of 2009. This paper will identify the origin of the financial crisis of 2007, explain why conventional expansionary monetary policy is ineffective in this case, argue for the

Since the global financial crisis of 2008, the UK government has been implementing various policies to combat the recession and stimulate economic growth. This essay will look at how effective the fiscal and monetary policies used since the crisis are in achieving the four-macro economic objectives. In addition, I will provide my input on the best way the UK government can carry out these policies.