Question

Analyzing the Great Recession of 2008 and address the following:

Specify the exact duration and severity of the 2008 recession.

Identify and explain the root causes of the 2008 recession.

Identify the three individuals, firms or agencies that, in your opinion, contributed the most to the recession and explain your answer.

Explain the economic actions or controls the U.S. implemented to fight the 2008 recession, and how effective they were in fighting recession.

Identify any actions the US failed to take in fighting the 2008 recession.

Explain the role of moral hazard in the recession and the recovery.

Answer 1

The exact duration lasted from End of 2007 till end of 2009 wherein the peak unemployment took place in September 2008 where severity peaked such that US fed dropped interest rates to Zero followed by TARP program.

Rootcauses was booming households debt and subprike mortgages crisis which was undertaken by large banks like Freddie Mac, Lehman brothers, JP Morgan which had elevated debt and hummongous lending at low rates.

To fight economic recession U S government adopted expansionary fiscal and monetary policy by buying 800 b$ of bonds and lowering interest rates and CRR. With multiple tax cuts and soending using TARP programs and Unemployment insurance which helped lower unemployment to 7.2 percent from 11.1 per cent and infkate economy to 2% levels by 2009.

Actions which failed were implementation of TARP programme and policy lags which derailed economic action and took larger time to revive.

Moral hazard here was unemployment insurance to provide economic stimulus and guard off against risk of wider recession and hence governments incurred huge costs which led to high national debt and fiscal deficit.