The great recession refers to the economic downturn between 2008 and 2013. The recession began after the 2007/08 global credit crunch and led to a prolonged period of low/negative growth, rising unemployment and a period of fiscal austerity. In particular, the great recession highlighted problems within the Eurozone which experienced a double-dip recession and high unemployment. Show
Recession in US and EU. Source: Eurostat Output gap
Graph showing how much real GDP fell behind the trend growth in the UK. Unlike previous recessions, the economy did not catch up the lost output. Causes of the great recession 2007-08The primary cause of the great recession was the credit crunch (2007-08) where the global banking system became short of funds, leading to a decline in confidence and decline in bank lending. The causes of the credit crunch were quite complicated but in summary.
See more at: Credit crunch for a more detailed account The recession was also caused by
More details on causes of great recession
The impact of the credit crunch and recession
Response to the great recession
Why did normal policy fail to achieve a proper economic recovery?The UK had the slowest recovery on record. See: Comparing different recessions
Investment problems specific to the EurozoneGraph showing the long-term decline in average growth rates in Eurozone.
The rate of unemployment fell quicker in the US and UK than the Eurozone. The higher unemployment in Eurozone was due to greater fiscal austerity and lower economic growth. It has also been attributed to less flexible labour markets. The UK in the great recessionThe initial recession hit the UK hard because of our relative reliance on the finance sector. The drop in GDP was longer-lasting than in the 1930s. Despite, cuts in interest rates and large sums of quantitative easing, the UK economy stalled in 2011 and went into a double-dip recession. Some felt that the government’s austerity drive of 2010-12 was a significant factor in causing this double-dip recession. Although spending cuts were relatively mild, there was also an adverse impact on confidence. However, unemployment rose less than might have been expected (UK unemployment mystery) Most economists feel that the UK experience would have been worse, had we been a member of the Euro.
However, the UK economy is still reliant on exports to Europe and a continued EU recession is a factor in slowing UK growth. See: Economic record of UK 2010-16 Related
Was the Economic Stimulus Act of 2008 fiscal or monetary policy?Beginning in 2008 many nations of the world enacted fiscal stimulus plans in response to the Great Recession. These nations used different combinations of government spending and tax cuts to boost their sagging economies.
What happens to fiscal policy during recession?During a recession, the government may lower tax rates or increase spending to encourage demand and spur economic activity. Conversely, to combat inflation, it may raise rates or cut spending to cool down the economy.
How did monetary policy help the Great Recession?The Fed's approach to dealing with the crisis—drastically reducing short-term interest rates and lowering long-term interest rates via quantitative easing, all while maintaining a 2 percent inflation target—helped the economy toward economic recovery.
What did the government do during the recession of 2008?The U.S. Federal government spent $787 billion in deficit spending in an effort to stimulate the economy during the Great Recession under the American Recovery and Reinvestment Act, according to the Congressional Budget Office.
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