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Impact of the great recession

An image of a new home construction that appears to have most of the exterior completed but which clearly is not finished and has been abandoned for some time.
The impact of the Great Recession can be seen in many areas of the economy that impact our daily lives. One of the most visible signs can be seen in the housing market where many homes and other buildings are abandoned, including ones that midway through construction. (Credit: modification of work by A McLin/Flickr Creative Commons)

The Great Recession ended in June 2009 after 18 months, according to the National Bureau of Economic Research (NBER). The NBER examines a variety of measures of economic activity to gauge the overall health of the economy. These measures include real income, wholesale and retail sales, employment, and industrial production. In the years since the official end of this historic economic downturn, it has become clear that the Great Recession was two-pronged, hitting the U.S. economy with the collapse of the housing market and the failure of the financial system's credit institutions, further contaminating global economies. While the stock market rapidly lost trillions of dollars of value, consumer spending dried up, and companies began cutting jobs, economic policymakers were struggling with how to best combat and prevent a national, and even global economic collapse. In the end, policymakers used a number of controversial monetary and fiscal policies to support the housing market and domestic industries as well as to stabilize the financial sector. Some of these initiatives included:

  • Federal Reserve Bank purchase of both traditional and nontraditional assets off banks' balance sheets. By doing this, the Fed injected money into the banking system and increased the amounts of funds available to lend to the business sector and consumers. This also dropped short-term interest rates to as low as zero percent and had the effect of devaluing U.S. dollars in the global market and boosting exports.
  • The Congress and the President also passed several pieces of legislation that would stabilize the financial market. The Troubled Asset Relief Program (TARP), passed in late 2008, allowed the government to inject cash into troubled banks and other financial institutions and help support General Motors and Chrysler as they faced bankruptcy and threatened job losses throughout their supply chain. The American Recovery and Reinvestment Act in early 2009 provided tax rebates to low- and middle-income households to encourage consumer spending.

Four years after the end of the Great Recession, the economy has yet to return to its pre-recession levels of productivity and growth. Annual productivity increased only 1.9% between 2009 and 2012 compared to its 2.7% annual growth rate between 2000 and 2007, unemployment remains above the natural rate, and real GDP continues to lag behind potential growth. The actions taken to stabilize the economy are still under scrutiny and debate about their effectiveness continues. In this chapter, we will discuss the neoclassical perspective on economics and compare it to the Keynesian perspective. At the end of the chapter, we will use the neoclassical perspective to analyze the actions taken in the Great Recession.

Introduction to the neoclassical perspective

In this chapter, you will learn about:

  • The Building Blocks of Neoclassical Analysis
  • The Policy Implications of the Neoclassical Perspective
  • Balancing Keynesian and Neoclassical Models

In Chicago, Illinois, the highest recorded temperature was 105° in July 1995, while the lowest recorded temperature was 27° below zero in January 1958. Understanding why these extreme weather patterns occurred would be interesting. However, if you wanted to understand the typical weather pattern in Chicago, instead of focusing on one-time extremes, you would need to look at the entire pattern of data over time.

A similar lesson applies to the study of macroeconomics. It is interesting to study extreme situations, like the Great Depression of the 1930s or what many have called the Great Recession of 2008–2009. If you want to understand the whole picture, however, you need to look at the long term. Consider the unemployment rate. The unemployment rate has fluctuated from as low as 3.5% in 1969 to as high as 9.7% in 1982 and 9.6% in 2009. Even as the U.S. unemployment rate rose during recessions and declined during expansions, it kept returning to the general neighborhood of 5.0–5.5%. When the nonpartisan Congressional Budget Office carried out its long-range economic forecasts in 2010, it assumed that from 2015 to 2020, after the recession has passed, the unemployment rate would be 5.0%. From a long-run perspective, the economy seems to keep adjusting back to this rate of unemployment.

As the name “neoclassical” implies, this perspective of how the macroeconomy works is a “new” view of the “old” classical model of the economy. The classical view, the predominant economic philosophy until the Great Depression, was that short-term fluctuations in economic activity would rather quickly, with flexible prices, adjust back to full employment. This view of the economy implied a vertical aggregate supply curve at full employment GDP, and prescribed a “hands off” policy approach. For example, if the economy were to slip into recession (a leftward shift of the aggregate demand curve), it would temporarily exhibit a surplus of goods. This surplus would be eliminated with falling prices, and the economy would return to full employment level of GDP; no active fiscal or monetary policy was needed. In fact, the classical view was that expansionary fiscal or monetary policy would only cause inflation, rather than increase GDP. The deep and lasting impact of the Great Depression changed this thinking and Keynesian economics, which prescribed active fiscal policy to alleviate weak aggregate demand, became the more mainstream perspective.

Questions & Answers

Pls where can I found PRICE CONTROL on this app
Samuel Reply
top left corner
JUDE
A situation in an economy with one producer but many consumers
Kabali Reply
What is the theory of population according to Malthus?
Kabali
What is the Malthusian population theory?
Kabali
The Malthusian theory of population state that, where there are means of substinence like food, human beings have the tendency to procreate (ie.give birth) without restraint (ie. control).
George
he stated that population unchecked grows at a geometric progression ie 1,2,4,8,16 while the means food subsistence grows at arithmetic progression ie 1,2,3,4,5---- he declared that population has the tendency to outstrip the means of subsistence
Fung
What is money?
Kabali
money is any commodity that act as a medium of exchange
Fung
money is medium of exchange which is use in taking goods and giving some of it's worth or money value
Madhu
what is a debit card and a credit card?
Milly
a debit card is a payment card used instead of cash while purchasing
Madhu
a credit card is a payment card issued to users to enable cardholder to pay a merchant for goods and services
Madhu
oky tanx
Milly
good
ABDUL
What is an inferior good.?
Kabali
In economics, an inferior good is a good whose demand decreases when consumer income rises (or demand rises when consumer income decreases), 
Rams
what is monopoly
Richmond Reply
a market situation when there is only one seller of a product representing whole industry.
how
where one business is the dominant one in that market. It determines the market price as they are price makers. No entry, no competition.
karl
it is a market situation where is a single seller and many buyer hear the seller is the price maker the is no free entering and exit in this market
Fung
A situation in the economy where there is one producer and many consumers
Kabali
A market situation where there is one producer and many consumers.
Kabali
Balance of payments for 2018
Mahlatse Reply
what is monopoly and what is monopolaist
Javid Reply
what is the affect of rise in value of dollar ?
Shabana
monopoly"a single firm or company owns all or nearly all of the market for a given type of product or service "monopoly is a price maker ...barrier of entry ,non availability of close substitute.
Shabana
monopolistic competition or market is a situation where there are few or many firm producing identical but differentiated product .eg difference in advertisement ,packing etc
Shabana
monopolistic competition or market is a situation where there are few or many firm producing identical but differentiated product .eg difference in advertisement ,packing
jay
monopoly is a market situation ...where there is a single seller and large number of buyers deals with commodities having no close substitutes......here the sellers are price makers... there is restrictions in the entry and exit of new firms in this market structure....
lovely
what is money?
Hilary
money is a medium of exchange.....through which...commodities are bought and sold
lovely
money is a medium/means of exchange that generally accepted by law
Prince
What is tranfer earnings
Admire
what is savings income?
Limitles
transfer earning is the minimum income that a factor is willing to accept in an occupation,it is also call the supply price of a factor
Fung
what is envelope curve
Dharam
what is depreciation
Fung
depreciation means decrease in value of a assets due to normal wear or year ,means decrease in value of assets like a machine due to its daily use
ru
Refers to wear and tear of capital machinery
apule
what is meant by currency depreciation?
Shabana
an envelope curve is also call an umbrella curve it is any curve that is enclosed by being tangen t to a series of other curves
Fung
fall in the value of currency vis-a-vis any other currency usually $ due to marker forces is called currency depreciation. it is different from devaluation where in value of currency is deliberately reduced to improve BoT
mohammad
depreciation in its broad sense means loss in the value of fixed capital say a tractor due to i) normal wear and tear ii) normal rate of accidental damage iii) expected absolescence to meet this, Depereciation Reserve Fund is created it is calculated by firms on the basis of their experience.
mohammad
what is green revolution ?discuss the achievement of green revolution in India
Sweety Reply
green revolution is the third revolution of agricultural refers to a set of research and development of technology transfer initiative occuring between 1930s and the late 1960s that increased agricultural is called green revolution
Javid
the green revolution happened because to improve the agricultural sector towards adopting mordern methods and improvement of agricultural equipments
Madhu
green revolution means new innovation for high yielding varieties seeds towards economic development in agriculture sector. started in 1966, it's achievement increase per productive of all crops ie rice, wheat,maiz,etc...mainly 131 million food grain in 1978-79 produced in india
Rams
what calculation for demand and supply
Amoo Reply
what is nationalisation
Awuni Reply
it is a process of converting private assets into public assets by undertaking the control of government or state authority
ru
yes
Emmanuel
so true
Violet
what are some the things that may lead to nationalisation
Fung
Over exploring of customers by the private individuals Also to make the nationalised organisation social reliable and accessible by all
Richard
feeling of one's is called nationalisation. unity among them self .
Madhu
anything which is widely acceptable as a medium of exchange
Shabana Reply
money ,currency
ru
Hello plz,what is the full mean of tertiary?
al Reply
tertiary also called philoshper
Waseem
tertiary means third..for example primary sector ,secondary and tertiary sector... means three number..
ru
ru 9ice tnk
al
your most welcome.
ru
tnz
al
what is money
Tettey
what is a bank
Walters
a financial institution which holds money for its clients ,which collect deposit and lend money at interest and trades generally in money...
Shabana
what is bankers draft ?kindly explain with example .
Shabana
money "anything which is widely acceptable as a medium of exchange"
Shabana
yes u ryt #shabana
Dar
difference between cost and price
Dar
Shallow definition
Adam
cost"the value of input that is the amount of money which is used to produce a good or service . price"an amount of money which has to b paid to buy something.
Shabana
Tertiary is an adjective(pre position) for stages or levels and refers to "top, final, full term ." ; Advanced.
Anderson
bank draft is a type of cheque which a person buy for to pay someone who is not willing to accept a personal cheque .
ru
tertiary sector is an providing any kind of services.
Madhu
primary sector is 'agriculture', secondary sector is ' industrial sector ,and the tertiary sector is ,' service sector' ,
Dharam
subana are you understand now the meaning of bank draft?
ru
what is golden- diamond paradox
Tammanna
what is occupational structure
Madhu Reply
occupational structure refers to the distribution of occupation on the basis of educational ,socoial ,income level in a society or economy
ru
no that is not a exact meaning
Madhu
than what is exact meaning
Dharam
It refers to also the what is the average income of the person
Madhu
what is deficit
Obiajunwa Reply
deficit = expenses > revenue
Waseem
yeah expenses over revenue results in deficit
Paulina
insufficiency
Anderson
What is What is Equilibrium
Bright Reply
from business point of view it is that point where business revanu are equal to its expenses.
ru
in economy where demand is equal to supply is called equalibrium
ru
Equilibrium in economics is where quantity demanded is equal to quantity supplied
Collins
what are the objectives of devaluation
Oyedun
how the government solve the problem of scarcity
SUNDAY Reply
how government solve the problem of scarcity
SUNDAY
by deciding the output limit for every industry and providing resources to these industries according to output limit .the problem can be solved
ru
and by controlling the activity of production like as a mixed economy this problem can be solved
ru
by proper planning to cater the needs of people, demand & supply process may prove helpful. and by imposing heavy import duty on the product to shift the demand towards available alternative sources.
Abida
changing the methods of production, and tax system
Khushal
In problems of scarcity government should adopt a plan or state budget, form a long term policy , deal with corruption , mobilise resources ,systems and monitor.
Anderson
by doing various plans or scheme and providing various kind of free or in less price to the needy people
Madhu
Plx anyone explain bankers draft by giving example.
Shabana
what is price elasticity of demand?
Asamoah Reply
price elasticity of demand is the percentage in quantity demanded of a good or service to the percentage change in its price.
Cobbina
Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price when nothing but the price changes.
TOHEEB
Price elasticity of Demand is a prepotionat change in the demand due to change in price of the goods and service
Dawal
what is monopoly and monopolistic?
KPAAKPA
Price elasticity of demand is the economy measure to show the responsiveness and change in price due to change in quantity.
Lomayani

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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