Great Recession Of 2008 Fiscal Policy

Demand-side Policies and the Great Recession of 2008
Steven Hooten
American Military University
Macroeconomics
Professor Adhikari
17 April 2016 Demand-side Policies and the Great Recession of 2008
The economic meaning of a recession is “a significant decline in activity across the economy, lasting longer than a few months” (Recession, 2016). This can include many different aspects of the economy, from “industrial production, employment, real income and wholesale-retail trade” (Recession, 2016). This economic hardship took place in the United States in 2008. Called the Great Recession, this economic crisis was a difficult one to remedy. The government took to the use of two different types of policies, fiscal and monetary, in order

Fiscal policies are policies that have the main goal of cutting taxes as well as increasing government spending. The United States’ government implemented a great amount of fiscal policies during this hard economic time in history. One fiscal policy that was implemented during the recession is called the Troubled Asset Relief Program, or better known as TARP. TARP was passed and enacted by Congress in October of 2008 (Blinder & Zandi, 2010). Part of this fiscal policy “was used by the Treasury to inject much needed capital into the nation’s banks” (Blinder & Zandi, 2010). In the spring of 2009, another part of TARP was implemented by both the Treasury and the Federal Reserve. This aspect of TARP mandated that “the 19 largest bank holding companies [were] to conduct comprehensive stress tests . . . to determine if they had sufficient capital to withstand further adverse circumstances—and to raise more capital if necessary” (Blinder & Zandi, 2010). TARP was not the only fiscal policy to be implemented by the government during the Great Recession,

The main goal of monetary policies is to reduce interest rates. This type of policy was actually “the main policy used during the Great Recession . . . because the fiscal policy takes too long to implement” (James, 2015). During the Great Recession, “the
Fed aggressively lowered interest rates during 2008, adopting a zero-interest-rate policy by year’s end” (Blinder & Zandi, 2010). This led to the use of what is known as quantitative easing. Quantitative easing is defined as “the process of the Fed buying large amounts of existing Treasury and mortgaged bonds in the open market with the sole purpose of driving down long-term interest rates” (Miller, 2014). This was put into practice when the Fed “[purchased]
Treasury bonds and Fannie Mae and Freddie Mac mortgage-backed securities (MBS) to bring down long-term interest rates” (Blinder, A. & Zandi,