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The Great Recession: Causes, Consequences, and Economic Policies (2007-2014)

This overview examines the Great Recession from 2007 to 2014, highlighting key events such as declining GDP, rising unemployment, and plummeting stock markets. It explores the consequences of high-risk sub-prime mortgages, the significant losses faced by financial institutions, and government interventions like TARP. Despite attempts to stimulate the economy through measures like tax rebates and the American Recovery and Reinvestment Act, challenges persisted, including a rising national debt and ongoing fiscal cliffs. The analysis reflects on the lasting impacts on employment and economic growth.

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The Great Recession: Causes, Consequences, and Economic Policies (2007-2014)

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  1. Macroeconomic Issues2007-2014

  2. The Great Recession: GDP begins to drop Shaded area = recession

  3. Employment falls

  4. Unemployment Rises

  5. The Stock Market Plummets

  6. The Deficit Explodes

  7. National Debt Grows

  8. The Federal Reserve Prints Money

  9. The beginnings of the great recession • High risk (“sub-prime”) mortgages became more common over past decade • Low down-payments • Poor credit histories • Mortgage default rates rise in 2008 because • Housing prices fell • Adjustable rate mortgages “reset” • Worsening economic conditions • Nearly 5 million homeowners lost their homes between 2008 & 2010

  10. The Financial Crisis of 2008 • Financial institutions experience significant losses due to defaults on mortgages. • Several failing financial institutions either acquired by others or go bankrupt. • Federal Reserve and U.S. government extend aid to financial institutions • Fed lends money to banks • October 2008: Federal government establishes $700 billion TARP (troubled asset relief program) • Stock market drops nearly 50% in 2008 • Difficult for business to borrow • Consumers cut back on spending

  11. Government attempts to stimulate the economy • Feb 2008: Economic Recovery Act • Approval of $168 billion stimulus package • Tax rebates to 130 million households • $600 for single • $1200 for married • “booster shot” for the U.S. economy

  12. Government attempts to stimulate the economy • American Recovery and Reinvestment Act passed in February 2009 • $288 b. in tax cuts and benefits • Housing, cash-for-clunkers, etc. • $224 b. for education, health care, and entitlement programs • Health insurance for unemployed, extended unemployment benefits, etc. • $275 b. for federal contracts, grants and loans • Support to states, roads, etc.

  13. On-going Issues • Deficit reduction & “Fiscal Cliff” • Debt ceiling agreeeent reached in Feb. 2014 extends debt ceiling to March 2015. • Taxes vs spending • Entitlement program reform • Monetary policy, interest rates and inflation. • Slow growth in U.S. economy • Unemployment has improved, but still above pre-recession levels • Structural change • Policies to improve growth in economy

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