Demand-Side Policies and the Great Recession of 2008 (Research Paper Sample)

Demand-Side Policies and the Great Recession of 2008
Name
Department, University
Course
Instructor
Date
Demand-Side Policies and the Great Recession of 2008
The Great Recession of 2008 was one of the worst recessions in the U.S history as it led to the contraction of the economy by 4.3% and a high unemployment rate of 10% (Weinberg, 2013). A recession is a period marked by weak indicators of economic activity, including negative growth and high unemployment rate. At the height of the recession, the U.S government and the Federal Reserve Bank (the Fed) adopted several demand-side policies to facilitate a swift recovery of the economy, including deficit spending, tax cuts, and lowered interest rates to encourage borrowing. Consequently, the economic impacts of the recession were averted due to the spontaneous reaction of the U.S government and the Fed through fiscal and monetary policies.
Fiscal Policies
Fiscal policy is one of the government’s methods of interventions to maintain economic stability. Weinstock (2021) defines fiscal policy as measures taken by the government to adjust its spending and tax revenue to influence the national economy. There are two main types of fiscal policies. First, expansionary fiscal policy is used by the government to spur economic activity during recessions by increasing its expenditure and decreasing tax revenues. Second, contractionary fiscal policy is used by the government during high inflation periods to discourage spending by raising taxes and cutting spending. Thus, the government uses taxes and spending as the primary tools of fiscal policy to maintain economic stability either through expansionary or contractionary methods of interventions.
Monetary Policies
Monetary policies are used by the Federal Reserve Bank to control money supply in the economy. The Fed implements monetary policy to promote maximum employment and foster long-term economic growth by adjusting interest rates and changing bank reserve requirements. Monetary policies are classified as either expansionary or contractionary. An expansionary policy lowers interest rates to encourage consumer borrowing and spending. Such a policy is mostly used during recessions to spur economic growth. A contractionary policy reduces the money supply by increasing interest rates, which reduce the effects of inflation. Thus, monetary policies are used by the Federal Reserve Bank to achieve its mandate of maintaining stable prices, promoting maximum employment, and supporting conditions for long-term economic growth.
Demand Side Policies During the 2008 Recession
The primary goal of demand side policies is to increase the aggregate demand in the economy. Aboobaker and Mitchell (2022) define demand side policies as interventions that address the problems of economies suffering low levels of output, employment, and growth. Since aggregate demand is the primary factor driving economic activity, governments utilize demand side policies to generate demand for goods and services during periods of economic uncertainty. During the 2008