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Demand-Side Policies and the Great Recession of 2008 and Beyond (Essay Sample)


The task was to write about the fiscal and monetary policy in America. The sample paper is writen in APA format outlining the fiscal and monetary policy that were in place in America before the great recession.


Demand-Side Policies and the Great Recession of 2008 and Beyond
Demand-Side Policies and the Great Recession of 2008 and Beyond
Economic Meaning of Recession
Recession is defined as a period characterized by falling economic activities that are spread across the economy. These periods normally last for a few months. The effects of the slowed economy are felt in the real gross domestic product (real GDP), employment, real income, industrial production and also in the wholesale and retail sales. The above factors are the indicators that are observed to determine whether there is a recession in the economy (Krugman, 2009).
Fiscal policies
Fiscal policy regards the application of taxation and expenditure of the government to influence or impact the economy. This is effective when the government makes a decision on the services and goods it wants to purchase, its transfer payments that it distributes and the taxes that it collects. The basic economic impact of the government changes in the budget is felt by a certain group. For instance, in case of a cut in the amount of tax paid by some families who have children, it increases their amount of disposable income (Buti, 2003).
The fiscal policies majorly concentrates on the impacts of the government budget changes in the general economy. The fiscal policies are said to be contractionary or tight when the amount of revenue is more than that used in the government spending. That is, when there is a surplus in the government budget (Buti, 2003). The fiscal policies are as well said to be expansionary or loose when the amount of government spending is higher than that of revenue. In this case, the budget is said to be in deficit. In this case, the focus is on the deficit change and not in the level of change.
Monetary policies
Monetary policy constitutes influencing or affecting the availability and the credit cost and money to promote or encourage a healthy economy. The Fed constitutes the monetary policy authority of the U.S (United States). The Fed has no authority, directly, to control inflation, employment, or output or set the long-term rates of interest. However, it affects these fundamental variables of the economy indirectly principally via its control over the funds rate of the Fed. The most frequently applied monetary policy tool by the Fed is the open market operations (Correia, Nicolini, & Teles, 2003).
The aggregate demand level is also affected by the fiscal policy. The government meets most of its expenses by issuing bonds when it runs short of cash. This means that the government competes for money with the private borrowers for the monies that are loaned by individual private borrowers. This will crowd out private investments. This wo...
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