Category: Recession

Overview

The topic that is going to be covered within the framework of the current paper is the impact of the Recession on the US population. In her article titled “Fueled by Recession, U.S. Wealth Gap is Widest in Decades; Study Finds,” Cohen (2014) dwelled on the socioeconomic challenges linked to the crisis. She also explained why the gap between the rich and the poor continued to grow over the years. This is an important topic because it shows how society overlooks the value of collaboration and complex networking while focusing solely on their income levels. The current paper is going to analyze Cohen’s (2014) article from two particular perspectives that have been mentioned in Mills’ (2000) book titled Sociological Imagination. Additional evidence from the literature will be used to validate the points made by both authors and outline the value of the Recession from the point of sociology.

Article Summary

The primary finding that Cohen (2014) shares with the readers is that the wealth gap across the United States keeps growing unremittingly. It means that the core outcomes of income inequality can be expected to affect the families that can be described as low-income or at least below-average. Therefore, Americans’ financial well-being currently goes through a challenging period that can be defined by the inability to come back from a major monetary loss. The wealth gap described by Cohen (2014) can be seen as passed down through the generations because economic downturns prevent the majority of average Americans from recovering from the Recession. The median wealth of high-income households continues to rise, highlighting the inequity once more. Over time, the burden placed on the shoulders of the US economy also created hindrances to organizational productivity (Cohen, 2014). The impact of the wealth gap remains largely unnoticed by the majority of Americans, but the long-term implications of the Recession are still visible, especially the ones related to the unemployment rate, economic recovery, and housing prices.

Article Analysis

Concept #1

“Humanity itself now lies before us, the super-nation at either pole concentrating its most coordinated and massive efforts upon the preparation of World War Three” (Mills, 2000).

The challenges associated with the Recession can be seen as predictors of probable change intended to improve the current state of affairs across the United States. Nevertheless, this motivation may not be enough to instill the right transformations and alter the long-standing patterns in society and the economy (Smith-Ruiz & Kopak, 2021). In her article, Cohen (2014) rightfully states that the wealth gap keeps on growing because it is dependent on the history of financial success. This also shows how the majority of changes expected by low- and average-income Americans are never going to happen because they are not in line with the socioeconomic agenda of the state. A coordinated focus on the military and its business-related components contributes to the issue as well. The patterns of poverty tend to remain identical over the years, which proves that Cohen’s (2014) outlook on contemporary evidence is relevant and accurate.

Throughout the past decade, Americans have had to cope with the consequences of the Recession and then got hit by the COVID-19 pandemic and its long-term effects. According to Rose (2021), without a contextual understanding of why the wealth gap prevails, the US government will unintentionally keep polarizing civilians while pursuing large-scale objectives that do not benefit the community as a whole. By mentioning World War Three in his book, Mills (2000) tried to bring more attention to the issue of humans ignoring each other’s needs in the face of major socioeconomic crises. Without networking, Americans will contribute to the wealth gap even more.

Concept #2

“Older decisions that once appeared sound now seem to them products of a mind unaccountably dense.” (Mills, 2000).

Another particular challenge that has to be considered when discussing the wealth gap and its socioeconomic implications is the lack of insight into the past and the future of the country’s economy. The structure of American society majorly drives the current wealth gap and rewards its existence by promoting social media influencers and other individuals that do not bring any tangible value to the country’s economy (Smith-Ruiz & Kopak, 2021). The lack of support from the government makes many people from disadvantaged and remote regions turn to criminal activities in an attempt to make a living. Thus, it will be impossible to apply relevant experience from the past to the Recession and expect to attain positive outcomes for every stratum of American society.

The increasing importance of personal values as compared to the interests of the nation is another weakness that brings down the US economy. The consequences of the Recession, including the ever-growing wealth gap, make it safe to say that Mills’ (2000) suppositions regarding older decisions being inappropriate within contemporary environments are completely true. Individuals keep pushing an individualism-based agenda, which drives society’s attention away from rewarding professions and occupations that bring tangible socioeconomic change to the table (Gerstle et al., 2019). The sociological value of the Recession can be uncovered after helping more individuals recognize the importance of networking and innovation. The consequences of the COVID-19 pandemic will increase the wealth gap even further if no new strategies are deployed to prevent society from detaching from reality completely in pursuit of individualistic benefits.

References

Cohen, P. (2014). Fueled by Recession, U.S. wealth gap is widest in decades, study finds. nytimes.com. Web.

Gerstle, G., Lichtenstein, N., & O’Connor, A. (2019). Beyond the New Deal Order: US politics from the Great Depression to the Great Recession. University of Pennsylvania Press.

Mills, C. W. (2000). The sociological imagination. Oxford University Press.

Rose, A. (2021). COVID-19 economic impacts in perspective: A comparison to recent US disasters. International Journal of Disaster Risk Reduction, 60, 1-5.

Smith-Ruiz, D., & Kopak, A. M. (2021). Black families and Recession in the United States: The enduring impact of the Great Recession of 2007–2009. Routledge.

The Great Recession has a tangible impact on the judicial system, just like on any other public and administrative fields in the country. The courts face significant financial losses due to decrease in budgeting and, as a result, they resorted to such measures as staff reduction, development of new positions taking large volume of responsibility, cutting salaries, and increasing fines and fees.

However, the attempt to restructure the environment has not contributed to improvement of service qualities because previous structures were not oriented on staff and budgeting shortage. As a proof, Hall (2012) argues that lack of personnel has led to serious errors and has restricted the judicial power to take responsibilities for accomplished objectives.

The inevitability of financial recession has also make the courts resort to inconsistent and unconsidered decisions, which were more premised on short-termed strategies, rather than on long-termed action plans. Finally, lack of available resources does not allow judicial institutions to keep people in prisons and therefore, most of them will have to be out.

The above-presented challenges are sophisticated, and they require a consistent and well-though approach to eliminating those. In particular, Badger’s (2012) mentions that the solution to return to private sectors for re-organizing public institutions could become an interim stage of court restructuring because longer implementation of this strategy provide new challenges for financial sustainability of governmental establishments.

Reducing the staff and remaining central positions is not an option as well because there should be a new consistent managerial structure before the shifts are implemented. Moreover, an isolated focus on court systems prevents the budget planners to look at the core of the problem and define the actual root of financial crisis. The collaborative scheme of managing prisons and litigations can be destructed due to the absence of people on certain positions.

The decision to let people out of the prisons seems to be the least possible for the welfare of the community, although it brings in financial solutions to the courts. Once again, Gramlich (2012) recalls the fast-growing rates of violence, crimes, and offences to emphasize that no special measures have bee introduced to explore the cause of such growth.

Instead, the government focuses on any opportunities to reduce financing of imprisonment institutions, leading to even greater crime rates. Therefore, mere reduction of prisoners in California cannot provide any financial benefits to the state in general (Gramlich, 2012). Therefore, these policies could not be regarded as a long-term strategies focused on reducing financial expenditures.

It should also be stressed that the judicial representatives fail to pay attention to the nature and accuracy of accusations imposed on the offenders. Inconsistency of court procedures can also influence the number of sanctioned arrests of people, leading to prison overcrowding.

The emerged criticism of prison system in the United States is predetermined by the trends and patterns in distributing administrative power. To begin with, Gramlich (2012) refers to a narrow-focused approach that the government use to eliminate the influence of the economic recession by introducing only small change to prison structure.

In particular, the construction of new prisons and reconstruction of the old ones require additional costs, which is unacceptable. At the same, meanwhile the construction is held the resources on the incoming prisoners have been run out. Inadequate resources distributions explain the failure of the government to work out efficient alternative strategies for changing the situation.

Another obstacle to reconstruction lies in the excess of supervisor positions in prison, which prevents from establishing a one-direction policy in improving the environment and reengineering the establishment. Gramlich (2012) notes that some aspects of management can be directed from larger establishment, including health care that can be coordinate from beyond.

Apart from the adversities within the court system, the indignation from the citizens aggravates the situation by ordering criminal justice changes to legislation. Cutting the expenditures on the prison rehabilitation has negative consequences for the prison future.

The policy of death punishment has also been reconsidered due to the significant budgeting shortage. Specifically, Williams (2012) observes that the cost on death penalty requires attention because impoverished states are in favor for rethinking the policy of capital punishment.

Certainly, the development of civilized society should exclude the possibility of death penalty. However, nowadays this decision is also financially predetermined (Williams, 2012). At this point, this outcome of the Great Recession is beneficial for the social and economic development.

In order to prevent further erosion of court and judicial system, several recommendations should be introduced. First, enhanced technology and software support can contribute to communication and regulation. Second, improved practices can assist in self-representation of litigants. Third, mental health and substance abuse treatment should be available for people to eliminate psychological problems.

Finally, defense services should also be improved to manage the crime rates. The proposed innovation and reforms are of high importance for the current court system to remain afloat during the Great Recession and introduce changes. In fact, U.S. judicial system should pay attention to innovation and modernization.

References

Badger, E. (2012). Private Prisons Can’t Lock in Savings. The Cost of Punishment. In State and Local Government. K. B. Smith (Ed.). US: CQ Press. pp. 93-94.

Gramlich, J. (2012). California Shrinks its Prisons, but Overcrowding Persists. The Cost of Punishment. In State and Local Government. K. B. Smith (Ed.). US: CQ Press. pp. 95-97.

Hall, D. J. (2012). Reshaping the Face of Justice: The Economic Tsunami Continues. The Cost of Punishment. In State and Local Government. K. B. Smith (Ed.). US: CQ Press. pp. 89-92.

Williams, R. (2012). The Cost of Punishment. In State and Local Government. K. B. Smith (Ed.). US: CQ Press. pp. 99-101.

Introduction

Economic conditions have a strong impact on the development of countries. At times of crises, people face issues such as unemployment, loss of income, reduced buying power, and more. One of the most recent examples of such events is the Great Recession, which peaked around the time of the 2008 economic crisis. The Great Recession was characterized by a long-term economic decline, which was particularly evident in the United States.

The period of the Great Recession and its aftermath affected the lives of millions in America, causing an increase in unemployment due to financial losses associated with the crisis. The Great Recession also influenced the public’s perception of democracy, as many began to think that the democratic government was incapable of supporting the country’s economy and returning it to a stable position.

A similar historical example can be observed in the period of the Great Depression, which hit the United States around the 1930s. In parallel the Great Recession, this period affected the economic, social, and political environment of the country. The Great Depression began when the stock market crashed in October 1929, leading to billions of losses in market value (Foner). The crisis also affected the political landscape of the country, which caused people to question the reliability of the government in managing an economic crisis.

The present essay will explore the issue of the Great Recession, focusing on its representation in news articles and its similarities with the Great Depression. The main argument of the paper is that the effects of the Great Recession on the economic, social, and political climate in the country were similar to the ones caused by the Great Depression in the 1930s.

Social and Economic Impact

The Great Recession had a significant impact on the American society, particularly due to job losses and decreased household income. For instance, Warner reports that “the net worth of the average American household has shrunk by about 20 percent”. Therefore, the Great Recession and the economic disruptions associated with it had a profound impact on family life, particularly in middle and low-class families. The fact that these socioeconomic groups were affected by the recession more severely than the affluent populations worsened income inequality and the gap between the rich and the poor in the United States (Warner).

Increased social inequality was also evident during the period of the Great Depression. Similarly to the Great Recession, the Great Depression occurred in the context of significant economic inequality, thus leaving middle and low classes poorer than ever before (Foner). The effects of both crises on the American society were also worsened by unemployment. In fact, after the Great Recession, unemployment in the United States reached its highest level since the end of the Great Depression (Warner). Widespread unemployment in both cases was caused by losses in market value and bankruptcy of thousands of American businesses. Those companies that stayed in business were forced to cut their costs by reducing the workforce, which left millions of people without income and unable to find a job.

Overall, the effects of the Great Recession and the Great Depression on the American society were rather similar. Both events triggered job losses, which resulted in reduced income and record-high unemployment. Moreover, the two crises impacted the structure of the American society itself by increasing the gap between various social classes.

Political Impact

Both the Great Depression and the Great Recession had a strong influence on the political climate of the country. In particular, Schnurer argues that the recession has greatly shaped politics and laid the foundations for the Republican victory of 2016: “the upheaval today – not just in the U.S., but across the globe – has to be understood as a direct result of the Great Recession and its aftermath”. The reason for the impact of the Great Recession on politics was the change in people’s understanding of social and economic inequality after the crisis.

Before the recession, income inequality was widely accepted, as people perceived that some of the richest people in America earned their position using their knowledge of economics and their efforts to keep the economy from collapsing (Schnurer). However, the recession proved this opinion to be untrue, as the vast majority of the actions taken to revive the economy and prevent the crisis were futile. This shift had a profound impact on politics, as the public began to express skepticism towards the Democrats and favored the Republican agenda.

In a similar way, public attitudes towards Hover changed as the result of the Great Depression. Hoover’s response to the recession was widely deemed to be inadequate. Like the American government during the period of the Great Recession, Hoover opposed federal intervention in the economy and relied on private businesses to take steps to recovery (Foner). However, this strategy was not effective in granting an immediate relief to the population, causing the social and economic struggles to continue for almost a decade.

Long-Term Consequences

Lastly, it is clear that a major crisis such as the Great Recession or the Great Depression will have long-term consequences for the country and the society. For example, although the American economy has improved since the recession, some of its effects are likely to persist (Casselman). One of such effects is the economic inequality in the society. As shown in multiple studies, most of the areas that were significantly affected by the Great Recession still experience high rates of unemployment and low household income (Casselman).

One of the reasons for these long-term challenges is that the rate at which the economy approaches its pre-recession state is rather slow. Increased turnover and declining entrepreneurship, mainly caused by the economy becoming less dynamic and flexible to adapt to economic changes, were also among the economic impacts of the recession (Casselman). This affected the ability of the American economy to return to its normal state, thus causing lingering effects in the society.

In some aspects, the effects of the Great Depression on the American society and economy were also long-lasting. For instance, the Great Depression was associated with a decline in foreign trade, which assisted in the development of domestic businesses in the second half of the 20^th century (Foner). As described above, the Great Depression also contributed to economic inequality, unemployment, and poverty in the country. Despite numerous efforts to address these issues, many areas were still struggling with the aftermath of the crisis for decades after the economy had stabilized.

Conclusion

Overall, the analysis of the issue shows that the political, economic, and social effects of the Great Recession were similar in their significance to the ones experienced during the Great Depression. Using a variety of articles on the Great Recession, it was also possible to analyze the issue from various perspectives. For instance, whereas Warner’s article was written in 2010 when the short-term effects of the recession were especially prominent, Schnurer and Casselman write from a contemporary perspective, examining long-term consequences of the Great Recession on the society and politics.

The language used by writers also contributed to the exploration of democracy in the context of the Great Recession. In particular, all of the articles studied mentioned the inability of the Democratic government to provide a sustainable and effective solution to the Great Recession and its consequences. The exploration of the topic showed how the ideals and practices of democracy were largely irrelevant during a major economic crisis. In addition, the essay portrays how democracy can lead to unfreedom by failing to address social and economic issues in the aftermath of a crisis. However, the democracy also provided an opportunity for the people to impact the economic environment of the country by shifting to the Republican government in 2016, thus partly fulfilling its promise of freedom.

The analysis also portrayed how economic and political crises that occurred at various points in history influence the perception of democracy by the society. Before the Great Recession, people trusted the elected government to support the country during an economic crisis. After the Great Recession, however, people voted for the government that promised to listen to their concerns and to address the persistent economic and social issues caused by the crisis. On the whole, a detailed analysis of the topic helped to explore the topic of democracy and its influences on the country and the society.

Works Cited

Casselman, Ben. “Why Some Scars From the Recession May Never Vanish.” New York Times. 2017. Web.

Schnurer, Eric. “Politics Are Not Recession-Proof.” U.S. News. 2016. Web.

Warner, Judith. “What the Great Recession Has Done to Family Life.” New York Times. 2010. Web.

The specific role of the media in today’s society is frequently discussed, but one thing everyone agrees on is the idea that community-wide access to accurate information is essential to the health and welfare of a democratic society. Media outlets such as radio, internet, television, and newspapers all provide citizens with the information they use to make decisions regarding who they wish to vote for and which issues they wish to support.

The media thus acts as a kind of the fourth branch of government because it contributes to the natural checks and balances of our society. The media, through such vehicles as CNN and other network channels, acts as the link between people’s personal lives experienced daily to the larger events that occur outside of what they encounter in their everyday routine.

Media outlets such as CNN report on current events but also reflect social values in the choices made regarding what stories to cover as well as the tone of voice and styles used to convey the relevant information. An examination of four stories reported at CNN.com regarding the current recession reveals that it isn’t just the content of the story but the tone and style of the article that conveys an impression of impartiality even though it is subtly supportive and optimistic.

This is perhaps most apparent in a very recent article entitled “He’s laid off, you’re not – so now what?” by John DeVore (2009). This article is located in the Money and Main Street Living section and discusses a growing trend in American society in which men, the majority of individuals laid off in the current recession, are reverting into one of two major stereotypes. According to the author, they are either reverting to a version of the angry and confused frat boy or they are turning themselves into a caricature of the 1950s housewife.

Rather than backing up his claims with any kind of outside sources, though, the author simply instructs the presumably female reader on what she should expect and how she should react to best support her man. The information is delivered with an understanding, slightly humorous style that suggests sympathetic confidence. This can be heard in numerous places throughout the article such as when the author says, “Here’s what you can expect if your man is enjoying the distinctly humiliating process of collecting unemployment” (DeVore, 2009).

Here the author is sarcastic regarding the economy, sympathetic toward the man who’s lost his position, and conspiratorial with the woman who is reading his article. While the author seems to know what he’s talking about and appears to be providing relatively neutral information, he allows his tone and style to communicate empathy with his readers and gentle support for both male and female audiences.

Another story reported by Joe Sterling, “Finally in the land of the free, but where are the jobs?” (2009), the content of the story seems innocent enough but the choice of story obliquely addresses a larger issue causing a great deal of contention in today’s economy. Many Americans today are under the impression that immigrants moving into our country are taking much-needed jobs away from American-born citizens and feel a righteous rage against immigrants as a result (Rector, 2006).

As more Americans lose their jobs, these concerns become intensified. Sterling’s story simply reports the facts regarding the common problem many refugees are encountering upon reaching America’s shores – they are not able to find jobs. Just like thousands of Americans, these refugees, many of whom are well-educated and even fluent in English, are not able to find jobs that will provide them with the means to sustain themselves while the resources available to them are very limited. The article uses a number of first-hand accounts of refugees and experts in the field of refugee services to make his point, giving the article a great deal of credibility and seeming impartiality while the subject itself encourages readers to take a closer look at the immigration issues.

This same approach can be discovered when looking over the titles of articles on the recession dating from late April. The direction of reporting is consistently focused on illustrating how the wealthy have been impacted by the recession more than the effects as they are being felt on the street. An example of an article of this type is “High-end coffee business slows during the recession” by Curt Merrill (2009). The article utilizes the expert opinions of individuals within the coffee market to examine how much the recession is affecting their sales, presuming that this is a strong indicator of how the recession is affecting the upper class.

While it gives a token nod to the growers who supply the beans for this market, the story is really about spending, offering the perspective that people are still buying high-end products. In making this contention, the news agency is again offering hope that the recession is not as bad as other media outlets might suggest because some store owners are actually considering expansion and wealthy people continue to purchase luxury goods. Yet, while the author points out how “Business is good enough that Riffel plans to open a second location,” he also points out how business services such as landlords, developers, and lenders are more desperate to find clients. This is the only indication within the article that anyone might be hurting.

Approaching the question of the recession from an even more impartial approach, A. Pawlowski presents the transcript of a short interview held with financial expert Ali Velshi in the article “Real stock rebound or a fool’s rally?” (2009). In this article, it is immediately established that the media outlet is attempting to convey an impartial stance regarding the recession by using the interview transcript format. However, this is also immediately refuted as the opening sentence of the article first sympathizes with readers, “if you’ve been afraid to check your portfolio or open your 401(k) statements in the past few months”, and then offers hope, “now might be the time to peek” (2009).

Here, the format provides credibility while the content is skewed to offer inspiration and hope to the reader. While the article discusses the various elements of the current economy from a realistic perspective, the questions asked are geared to provide a sense of optimism. For example, one of the questions asks, “The stock market has been on the rise lately. Should people be encouraged?” In asking a question in this way, the interviewer almost forces a positive and uplifting response from the interviewee. In addition to the somewhat ‘loaded’ questions, the expert used in the interview was a member of the CNN staff. Although this was clearly indicated within the article, the format of the article gives the reader the impression of an unattached expert.

Each of these articles provides the sense that they are impartially reporting on the news, but also convey a sense of hopefulness and encouragement regarding the current economy. As this survey of articles has revealed, the method by which this is done is through a variety of tactics. While one author might present a very formalized style and professional format as in the provision of a transcript, another may provide heavily documented stories using a number of credible experts.

However, in each case, there is some element that pulls at the sympathies of the reader and conveys a sense of reassurance that things will get better. This is done through the tone of voice as the author relates his ideas, through the slant of the story as questions are asked, and through the type of content being focused on, whether it is intended to diffuse contention or to reassure that spending is still strong.

Understanding this, CNN emerges as a relatively biased news agency in that it encourages us as readers to believe that things are looking up without actually providing a great deal of information or expert advice to back up this impression. Even though they are largely considered to be impartial and unbiased, it is clear that CNN has an underlying agenda consistent among its various authors and intended to inspire confidence among the American public.

Works Cited

DeVore, John. “He’s laid off, you’re not – so now what?” Money and Main Street. CNN. (2009). Web.

Merrill, Curt. “High-end coffee business slows during recession.” Money and Main Street. CNN. (2009). Web.

Pawlowski, A. “Real stock rebound or a fool’s rally?” Living. CNN. (2009). Web.

Sterling, Joe. “Finally in the land of the free, but where are the jobs?” US. CNN. (2009). Web.

Introduction

Recession is the tendency of the economic activities of a given economy to suddenly decline. Currently, there are various macroeconomic activities that are affected by the cycle, for example the employment of citizens, GDP, investing power of investors, spending capabilities and on the running practices of business. In the recent times the U.S economy has been hit by recession. This has resulted in a slowdown of the economic activities around the country that has resulted on a negative impact on the local economies.

Effect of recession on the demand and supply of goods

During recession the spending power of the people had become less. The decline in the spending power is usually due to increased cost of living caused by inadequate income or unemployment due to lack of jobs or being laid off from work hence, the Purchasing power of the people decreases. During this economic period, the price of essential goods drastically escalated. However, the demand of necessity goods was not affected by the elasticity curve since demand for such commodities remained constant.

However, due to recession the price of luxury or conspicuous commodities increased drastically though there was no significant increase in demand. However, in instances where the commodity was not a necessity in the market, the increase in price brought by recession factors did affect the elasticity curve since the consumers shy away from spending during the period as the economic conditions did not provide for such spending habits. (Wilson, 2007).

Effect of recession on income and wealth distribution

In addition, recession results in a decreased Gross Domestic Product. This in turn affects the income and wealth distribution of the people. This occurs since people will normally shy away from investing in economic opportunities since they are not in a position to have large capital outlays or even get financial help from financial institutions which are usually severely affected by the recession.

In addition due to a decreased income per-capita, the people often spend less and the majority of investments or business ventures wind up business until the economic situation improves.

There is also a relationship between income generated during this period, its distribution and the macroeconomics of a given region by the various investments made by people. Therefore it shows that the income and wealth that people have is directly related to the macroeconomics factors and economical growth. Due to recession the economic growth us often stagnant hence the distribution of wealth is also decreased.

The regions or states have a higher rate of recession wealth or income factors, which are determined by historical factors that tended to, dictate how wealth will be distributed in the region. This has tended to be so because each region tends to follow certain growth patterns that have been determined by the economic opportunities available in the region. Hence each and every country has different economic growths patterns as well as income and wealth distribution patterns.

In addition, empirical data will show the relationship between income and wealth of a country to the income per- capita. Hence, in regions that have more investment opportunities, the income per-capita tends to be higher and its wealth is equally distributed in the region. However, in developing or poorer countries the opposite is the case.

Since the economic opportunities are less, the income per- capita is low and only a few individuals have access to the few economic opportunities and thus the income and wealth distribution is not equally distributed .Therefore, if the price of a commodity increases while the income of the per-capita income of the people remains the same, the demand of the commodity will decrease and so will the supply hence a change in the elasticity curve( Zeira, 2005).

Effect of recession on the mortgage and bank interest rate

Rent is the price paid by a person who uses property belonging to another person. Due to the recession effect, the mortgage costs were very expensive for people to afford therefore majority of the citizens who had inadequate income to facilitate the repayment of the mortgage installments defaulted.

As a result the demand of real estate declined drastically across the region as prospective homeowners could no longer afford vast capital outlays to purchase homes or even be given a mortgage by financial institutions. As a result of the decline in demand for housing, the rent of houses also declined though there was no immediate demand for housing units from the people (Carrington, 2005).

Interest is the cost paid for using money. It is usually stated as a percentage of the money borrowed. Money which by its nature is not an economical resource can be used in the acquiring of goods and services.

Therefore, one can be able to borrow money and in turn pay an additional amount to the principle owned. The amount of interest paid is usually calculated by putting into consideration the various factors affecting the economical conditions of a place. In the U.S the bank lending rates increased significantly as an effect brought about by the recession.

Due to the high rate of defaulting by debtors in repaying their debts, the banks had to increase their lending rates in order to recover the money lost in defaulting loans. Furthermore, the prevailing financial institutions, and banks had to increase their lending rates in order to factor in the high lending risks in the market. Also by increasing the lending rates interest, only the desired cliental could apply for loans as those who were not in a financial opposition could not do so (Oswald, A. & Sanfey, 2009).

Effect of recession on the U.S businesses

When the recession cycle hit the U.S., the first impact was felt by businesses both small scale and large scale businesses. Due to it, the production costs increased significantly over a short period. The cost of production of a product determines the price of the product, which id determined by the accumulative cost of all the resources involved.

The economical conditions brought by the recession dictated the cost of production of producing the commodity. The cost of raw materials became very expensive while their commodities suddenly lost demand due to the weak purchasing capability of the consumers.

Also the market price set price set by the demand determined whether the seller would commence on the production of a certain product, therefore the sellers found that the market price was very low than the anticipated set market price, hence, did not produce the products as a result they reduced their production or had to halt the production operations.

As a result a lot of drastic measures had to be put in place in order to survive the hard economic times. Some of the measures included; laying of workers, or closing off some business subsidiaries. However some of the businesses could not make it through the recession hence they winded up.

The U.S government had to in intervene in order to rescue some vital businesses by offering financial assistance in form of stimulus packages. In addition the employment rate has drastically grown and has hit the highest point in the last 30 years of the U.S unemployment history. The U.S stock market was also severely affected by the recession as the value of the stocks suddenly dropped since the investors expected the value of stocks to escalate further and thus they started disposing off their securities.

Due to the panic caused by the slump of the stock market, investors were off loading their shares in the market at deep prices since there was no demand from other stock investors to purchase them. As a result the sellers sold them at a very low price all at once that resulted in an overall decline in the value of shares. Due to decline in value of the shares, the value of firms declined as well as the profits (Oswald, A. & Sanfey, 2009).

Effect of recession on the youth

Majority of the youth after their completion of education, expected to get employed in various institutions. However due to a decline in the economic growth in the U.S, majority of them were not employed and according to statistics this trend of unemployment could continue for quit sometime into future due to the fact that business will take some time to recover from the effect or recession (Oswald, A. & Sanfey, 2009).

Conclusion

The recent recession has resulted in a number of negative effects on both economic and social institutions of the U.S. the number of unemployment has increased significantly thereby resulting in increased levels of poverty. In addition businesses have either lost their sources of revenue or completely winded up. The recession effects has also had negative impacts socially and economically on the youth whole have greatly suffered from unemployment and in turning relying on other unethical means to gain money like stealing.

The U.S government has also assisted in the trying to save the negative effects of the recession by offering financial assistance through stimulus packages. By doing so the government has saved a lot of companies from winding up. In addition it has saved the employment of many workers from being terminated suddenly. Stimulus packages also assist in jump starting the economy instead of waiting for the whole economic cycle to place at its own pace.

Reference List

Carrington , H.W. (2005). Perfect competition and the transformation of economics: south economic journal.125-231.

Khan, M. (2006). The supply and demand for exports: A Simultaneous Approach, 124-178.

Oswald, A. & Sanfey, P. (2009). Profits, and Rent-Sharing, The MIT ecomonic review, Vol. 12 22-27.

Wilson, R. (2007). A Bidding Model of Perfect Competition: The Review of Economic Studies, Vol. 10, 452-501.

Zeira, J. (2005). Income, distribution and macroeconomics: The Review of Economic Studies Ltd, Vol. 5, 45-65.

In Economics, recession refers to decline in a country’s gross domestic product for two consecutive quarters. There are several factors which caused recession but inflation is a key element. It is believed that global financial crisis was activated by liquidity decline in the banking sector following problems related to valuation of property. The resultant is a collapse in banking institutions and its subsequent bailout.

Being a sub-sector in the financial market, the stock market suffered adverse effects. Furthermore, other key businesses and wealth of consumers or rather consumer confidence declined to its minimum level. Other factors which caused the 2007 recession include: ‘‘the credit crunch, decreasing prices of houses, inflation resulting from the costs and loss of confidentiality of the financial institutions’’ Turner (9).

Collapse in the prices of houses

Statistics indicate a crash in the prices of home from the year 2005 to the end of the year 2006 consequently sending a message that recession was finding its way to the economy (Turner, 14). This was motivated by a 14% fall in construction of houses. Arizona, Florida and 40 other estates registered a decline in sale of homes.

A further investigation proved an increase by approximately 34% in the number of vacant homes in the year 2006. Cumulatively, low sales level demonstrates that profits are less and the economy will automatically face shrinkage. Furthermore the housing bubble decelerates consumer spending while sending more dedicated labor force into unemployment.

Statistics illustrate an estimate of 6 trillion US dollars mortgage debt in 1999 which translated to 12 trillion US dollars in 2007 and a further higher level in later years (Turner, 12). If these figures are compared with annual value of gross domestic product of approximately 11.5 trillion US dollars with a debt of 9 trillion US dollars then it was not possible to pay the losses.

This acted as the beginning of the present predicament of never ending financial crisis. Although expansionary fiscal policy has been used to counter the effects of financial crisis, there were minimum positive results.

Inflation

As mentioned earlier in the text, inflation is the progressive increase in the prices of commodities. Between the years 2007 – 2008 the price of oil was three times its original price (Read 8). More funds were used to buy fuel thus registering an outward flow of wealth from importing nation to exporting nation. Prices of other commodities like copper and nickel also fluctuated hence affecting the stability of an economy through a hampered purchasing power.

The credit crunch

This refers to absence of finance or putting in place strict rules and procedures necessary in order to obtaining loans. In such a situation, the interest rates and availability of credit are two independent variables. Collapse of prices due to inflation brings about credit crunch.

If investors cannot access loans from banks, it means that investment level declines. Subsequently, national income will reduce as the prices of common goods goes up. A simple Keynesian rule states the correlation between savings, investment, imports and exports and consumption. A decline in liquidity can lead to unemployment because companies seek to save other than spend the little amount of money they have.

Easy credit setting

Straightforward economics shades light on the effects of easy conditions when lending. If interest is lowered, people will go for more borrowings from banking and other lending institutions. At the beginning of the year 2002, Federal Reserve Bank reduced its lending rates by approximately 5.5% (Turner, 11).

This action was initially triggered by security alert and the risk of deflation. In 2006, the United States of America faced unfavorable trade deficit with rising current account. This forced the US treasury to borrow funds from Asia and some Middle East nations in order to supplement on its budget. Purchase of bonds was the form of borrowing used. The net effect was a rising prices of bonds while the interest rates face an acute fall.

With reference to balance of payment, existence of current account deficit means running a concurrent surplus capital account. Influx in the amount of capital after an external borrowing created demand for monetary assets while lowering interest rates. Individuals spent the money borrowed for consumption while financial institution diverted the funds to securities which were mortgage-backed.

Subprime mortgage lending

This type of lending simply refers to giving credit to persons who does not qualify for loans at the prime rates (Cooper, 13). Use of credit cards and mortgages covers this category of lending. The nature of sub-prime borrowers has a characteristic that they do not pay for the loans given to them.

Consequently, they are riskier when given loans as compared to the prime borrowers. In the United States of America, sub-prime lending has increased over the years beginning 90s. This saw a rise in loans to an estimate of $1.3 trillion in relation to subprime mortgages. The increase in the amount of loan followed an action by financial institution to package mortgages in form of securities and subsequently selling them to investors.

In the year 2006, decline in prices of homes resulted to losses as owners discovered that the amount they owed on mortgage was more than the value of their homes. The effect of this discovery was a loan default and a later reduction in the price of homes. This destroyed the mortgage backed securities making companies to write off their assets since they did not have any value.

Declining prices of homes with increasing interest rates made borrowers to default paying their loans causing the mortgage industry to cave in. The lenders in the subprime industry were adversely affected as investor confidence declined steadily. Furthermore, Instability in the financial market was caused by depression of collateralized debt obligation.

The credit crisis and mortgage industry has elicited varied views on how it caused the recent recession experience in the world. It is important to note that Banks are vulnerable to risks emanating from financial crisis. Some of these risks are related to overdrafts and the risks to credit where those who borrowed fail to pay their financial obligation.

During the financial crisis many banks collapsed or merged to ensure their continuity in the market. Banking industry had to borrow excessive amount of money as compare to their equity capital an event which made them highly leveraged and susceptible to unpredictable market conditions. Banks like the Lehman Brothers went bankrupt while others merged. In the same context, governments pumped in funds in form of bailout plan. Institutions which benefited from the bailout plan include: AIG and Freddie Mac

Burden of debt

Too much external borrowing increased individual and financial institution’s indebtedness thus putting housing bubble to collapse while deteriorating the economic situation. Economic statistics of 2007 indicate a 27% rise in home mortgage debt as compared to GDP (Read, 42).

On the other hand, household debt expanded by 127%. By mid 2008, US private debt had increased by more than 100%. These are unfavorable economic conditions which gave way to recession but can be reduced by borrowing internally and reshaping micro financial institutions.

Deregulations

The DIDMCA Act of 1980 widened bank’s lending powers and their insurance deposits. This motivated them to lend for speculative purposes. In the year 2004, the United States Securities and Exchange Commission relaxed the net capital rule enabling banks to increase the level of their debts.

This action fueled development of mortgage- backed securities and subprime mortgages. Banking sectors in the shadow banking system do not operate as depository banks. These banks are allowed to take up additional debts comparative to their capital base.

Another important point to note with regard to deregulation is the course taken by accounting regulators in allowing some banks i.e. Citigroup and Enron to make use of structured investment vehicles (Cooper, 33). This off balance sheet events hid the weakness of the financial institution.

Works Cited

Cooper, George. The Origin of Financial Crises. London: Harriman House, 2008.

Read, Colin. Global financial meltdown: How we can avoid the next Economic Crisis. New York: Palgrave Macmillan, 2009.

Turner, Graham. The Credit Crunch: Housing Bubbles, Globalisation and the Worldwide Economic Crisis. London: Pluto Press, 2008.

Introduction

The great recession that hit the US started in October 1929. It was the beginning of a ten year under employment and the recovery of the depression came into be with the start of World War II. However, other European nations recovered from the recession earlier than the US did.

The recovery in US was made possible when president Roosevelt was elected during which he brought policies that led to the implementation of a New Deal which was the basis for the recovery. The recession was mainly characterized by high rates of unemployment and a drastic decrease in GDP. The scarcity of money and shortage of credit policy that was implemented by the central bank of the United States to control the condition cane out to be an incorrect move as it worsened the economy (Morana, 2010, p. 1).

However, a new economic response came in too late because the tight monetary policy by the central bank had started long before the recession all the way towards the end of the crisis. Similarly, the new policy was not effective since it was about devaluating the dollar which would lower the monetary standard of the US currency. This policy would have resulted to promotion of the country’s economy at the expense of their neighboring countries.

The policies by President Roosevelt were, on the other hand, aimed at managing a balanced budget of the nation as well as reducing its deficits. This clearly showed that the monetary policy was more efficient in responding to the recession than the fiscal policy was. Although some efforts saw a spectacular growth in the nation’s GNP, the rate of employment that existed before the recession could not be restored as it recorded 25 percent lower (Macklem, 2010, p. 1).

Monetary and fiscal policies during the Great recession

The implementation of the monetary policy was arguably the one which brought to an end the great recession rather than the fiscal policy. For instance, some of the fiscal policies by President Roosevelt seemed to hinder all the efforts of ending the recession especially the quest for high wages for all employees.

This move would definitely slow down the growth of the economy rather than help in building it. The monetary policy also resulted to cutting down the expenditure by the US government on various key areas of the country’s budget. This was opposed to the fiscal policies implemented in Germany which saw Germany recover from the economic crisis. However, the fiscal actions taken in the US were not sufficient enough to bring much improvement to the economy.

The second world war however, boosted the government’s expenditure and consequently, led to higher growth rates compared to those during the fiscal policy implementation (Blinder And Zandi, 2010, p. 1). However, there was an extraordinary growth in the economy somewhere between 1933 and 1937.

This could have happened due to a change in that government which took place at the same time with the election of Roosevelt taking the position of president Hoover. The expectations of the people during this time worked as macroeconomic policies changed as well which produced drastic changes in prices of commodities and other variables.

With the election of President Roosevelt, the doctrine of non governmental interference in commerce was abolished and he shifted the strategy to an interventionist state. This move by Roosevelt had not only economic benefits but also enabled the people to gain confidence in the new administration especially in dealing with the financial crisis that the country was facing (Santucci, 2010, p. 1).

The tight monetary policy that was carried out in 1933 provided the fundamental basis for the recovery of the crisis despite the fact that the central bank did not play a significant role in these efforts. Just like many countries like Norway and UK had done, the US finally went off gold as they devaluated their currency in the year 1933 by a 41%. As a result, the flow of gold into the country increased and resulted to a decrease in interest rates.

This was an important start point in the process of recovering the country from the recession. This was followed by an increase in money supply that resulted to a significant growth in the county’s GDP. The implementation of the deflation policy saw the abandonment of the gold standard policy.

The effects of the devaluation of the US dollar were most importantly felt in the farm and other commodity prices which are the back bones of a county’s economy. The government then started the implementation of the devaluation policy by controlling prices in all economic industries.

The devaluation of the dollar made it possible for US to start the recovery process especially with the financial instability that Europe was facing, a situation which led to the increased flow of gold in the US. However, these efforts did not lead to a complete cessation of the crisis; at least not until the second world war was initiated (Hunt, 2010, p. 1).

Effects of the policies after the great recession

The most obvious short term effect of the great recession is high rates of unemployment resulting from the collapse of many businesses following the financial crisis. Employers in the US experienced short and long term disability costs per every claim as they decreased drastically after the recovery of the recession. Instead of focusing on unemployment and economic growth of the country, the US government has moved its concerns on making deficits.

Although deficits may be helpful in recovering a recession, the US government is more likely to suffer long term effects resulting from the growing deficits. It could even lead to another greater recession. Since the main cause of the recession was high deficits where many Americans live beyond their standards, the US government has lessened the accessibility of credit cards and home equity loans.

As a result, savings by the Americans are already increasing as credit levels decrease. Economic responsibility would and has led to reduced consumption. Corporate revenue as well as profits would increase leading to an increase in the rate of unemployment (Rose, 2010, p. 1).

Similarly, consumption would reduce and the cycle continues during which many families would be going through a lot of difficult moments. The recession has some good impacts as well. For instance, people will be aware of the situation and this would encourage many people and families be very watchful when it comes to debts and money expenditure.

As a result, many people will learn to live within their standards and be in a better position to save. All these changes would result to stabilization of the US economy and strengthened of the dollar. The government will be consequently relieved of debt payments and pressure on its taxes (Carr, 2008, p. 1).

Conclusion

The great recession that hit United States among other countries in the early 19s was one of the largest financial crisis to have hit Americans. The main cause of the recession was the existence of very high rates of debts which led to high rates of unemployment conditions. The country then tried solving the problem using the fiscal policy which entailed the control of taxes and government expenditure hence affecting the economic development of a nation.

However, if this policy is not carefully implemented, it may lead to a slow growth of an economy and this was precisely the reason behind why it failed to work in the attempt to recover the US economy during the great recession. After the failed attempt, the elect president Roosevelt came up with the new deal which saw the implementation of the monetary policy which involved reduction of interest rates, a move which made it possible for the nation to combat unemployment.

It also involved the increase of money supply but in a way that reduced inflation effects to the falling economy. The implementation of the monetary policy proved to be successful although the success was made possible partly due to the economic instability in Europe which led to an increase in the flow of gold into the United States. However, the actual recovery of the recession was at the start of the Second World War.

The move to go off gold standards was crucial as well although the US delayed a bit to take the move. This is related to other countries such as Europe which went off gold standards immediately and consequently, recovered from the depression earlier. Basically what made the monetary policy a success was the increased spending as well as growth of output both of which promoted the country’s confidence unlike the fiscal policy which never paid attention to a balanced budget.

Reference List

Blinder, Alan. And Zandi, Mark. 2010. How We Ended the Great Recession. Web.

Carr, Brian. 2008. The Recesssion – Short Term Pain, Long Term Gain. Web.

Hunt, Lacy. 2010. Fiscal Policy’s Unintended Consequences. Web.

Macklem, Tiff. 2010. Reflections on monetary policy after the Great Recession. International Finance Club of Montreal. Web.

Morana, Claudio. 2010. The Great Recession: US dynamics and spillovers to the world economy. Web.

Rose, Nelson. 2010. The Lingering Effects of the Great Recession. Web.

Santucci, Paul. 2010. Fiscal Policy or Monetary Policy, which will help us out of the recession? Web.

Introduction

The stability and vigor of any economy is very important to individuals living within that country, especially when it comes to determining prices of items, employment and lending interest rates. The economy usually undergoes different business cycles; these cycles include either a period of expansion (boom) or a period of contraction, which is referred to as the recession (Weaver 1).

These economic convulsions normally occur in the ordinary course of business and they are usually unpredictable. Some of the most famous economic contractions to ever hit the planet were the great depression of the 1930’s in U.S.A, the Asian currency crises of the late 1990’s and lately the great Recession of Dec 2008-June 09.

The long term growth of any economy is usually controlled by the government using both fiscal and monetary policies. These two tools are known as Macroeconomic policies which the government manipulates over the long run and short run in order to ensure that the economy achieves optimal performance (Colander 29).

Monetary policies aim to control the supply of money and interest rates within the economy by setting a floor or ceiling on the amount of money supplied at the economy at any one given moment (Weaver 17).

Fiscal policies on the other hand is a macroeconomic tool which a government steers the path of the economy by fluctuation the levels of government expenditure and revenue election which is also known as taxation. Both monetary and fiscal policies are important tools that enable the government through economists to carefully plan on how to counter the negative effects of either a recession or economic contraction.

The Great Recession

The great recession of 2008-09 is considered to be the worst recession that hit the American economy since World War II, furthermore the fact that the American economy was entering into recession was scaring the rest of the world’s biggest economies and trade partners this wide spread panic threatening to lead to a financial contagion.

The beginnings of the effects of the recession were felt in the Q1 (first quarter) of 2008 whereby by March over 63,000 Americans did lose their jobs. In Q3 the effects of the recession were rampant and many businesses around America started closing down due to bankruptcy claims, at the same time the American public spending had plummeted by over 6.3% and the economy of the United States Gross domestic product went down by 0.5%.

In the same Q3 of 2008 more that 156,000 American had lost their jobs (Roberts 29-40). During March 2009 the full effects of the recession were seen worldwide with America’s closest allies and business partners facing the hit and having their economies also plunge into economies contractions. During the same time the American unemployment rate had hit 8.5% and close to 5.1% million Americans were now jobless (Auerbach 6).

This meant that America was now in a lot of trouble because the Citizens were less liquid and had little or no money to spend, the same applied to businesses and not only were small to mid level commercial enterprises affected by this but also the giant business now felt the hit and their quarterly earnings together with share prices went down. Some of these corporations included A.I.G insurance, GM General Motors, Lehman Brothers, and Bear Stearns.

When citizens and businesses of an economy do not spend due to luck of enough disposable income then speculation ceases to exist and an economy which does not spend will definitely not grow but shrink (Roberts 79-82). The American government was forced to intervene because it could no longer sit by and watch the economic prowess of their country go down the drain the government used Macroeconomic policies to restore the public and investor confidence in the American Economy by bringing it back to track.

The Government comes to the rescue

Fiscal Policies

The American government through the Federal Reserve decided to introduce a $ 787 billion stimulus package as a part of its fiscal policy to stimulate spending within the American economy. The American government aimed at increasing the amount of money which was in the hands of Americans.

By this way then Americans would have more money to spend on goods and services within their borders. Most of the money from the package leaked and trickled down into the economy through unemployment benefits for those who lost their jobs and other social welfare provisions and domestic expenditure in education, health care, and infrastructure together with the energy sector (Auerbach 1).

According to Maynard Keynes, a renowned economist, when the government counters the contraction of an economy during a recession, increased government expenditure can be a way by which the government can increase aggregate demand within the economy.

An increase of funds in the economy will mean that there are more funds which individuals can use to purchase goods within the American economy, this way even the business men and entrepreneurs together with corporate establishments will also have more need to increase business activities and order more suppliers from other vendors.

In other words the spending and demand of goods and services as a result of increase government spending will encourage repeated economic activity that will send a shock wave through the economy and revive business activities (Auerbach 3).

The expansionary monetary policy which is also called by economists as easy money was brought about by the Barrack Obama’s administration in order to ensure that local American bushiness would no loner close down because the American consumers lacked funds to stimulate demand, the economists under this regime believed that increased expenditure as the result of the fiscal policy would end up increasing the amount of money that the American public held and this would force them to demand goods and services.

Another fiscal policy adopted by the American government during this period was reduction of taxes especially through tax incentives which were also designed for both individuals and companies.

Under this scheme, individuals would either save on taxes as a result of tax cuts or receive government cheques of tax incentives. Some of this tax benefits and incentives included new payroll tax incentives where individual taxation was reduced in homesteads that increasing the amount of money available to individuals once they were paid (Auerbach 6).

The government reviewed Expansion of child tax credit by extending $1,000 credit to families with children even those families which were not able to pay taxes before. At the same period families with children in collage also got tax incentives in order to promote spending in education, home buyers also got tax incentives through the Homebuyer credit scheme where the government wanted to encourage individuals to buy homes and revive the real estate sector.

Unemployed individuals who were enjoying unemployment benefits had their taxable income coming from unemployment benefits also reduced (Roberts 172-177). The government also extended tax incentives to individuals who used more friendly sources of energy and building materials in their homes.

Companies on the other hand were allowed to adjust loses running up to five previous years and file for tax refunds, tax credits were also extended to companies which have adopted renewable energy and green practices and some companies also got tax credits and refunds through adjusting the depreciation of their assets.

The move of the American government to offer tax incentive to both the corporate world and individuals was to increase the amount of disposable income in their hands in order to elevate aggregate demand within the American economy.

Monetary Policies

When the great recession hit America, the government was forced to carry out radical monetary policies in order to pull out the economy out of the recession. The economic bubble that came with the recession interrupted the demand and supply of money together with interest rates.

The subsequent contraction of the economy forced the Federal Reserve to adopt an expansionary economic policy that would enable the cash tight economy ensures that the supply of money in the economy was appropriate for recovery. The government besides initiating a $787b went further to bail out banks which had lost numerous funds and had even run out of capital to cater to the largest deposits of their customers (Roberts 82).

The rapid revival of the economy meant that the Federal Bank initiated a nationwide response that would guarantee the increase in supply of money and this would decrease the interest rates. The recession made it hard even for individual and companies to borrow credit because the shortage of money meant that the cost of borrowing had gone up and this led the entire nation to a liquidity problem and individuals/corporate did not spend a lot of money because they feared borrowing.

The government thus introduced a bail out package of $ 700B, this bailout plan was necessary and proved fruitful because most of the time it is the banks which serve as the financial intermediaries in a country’s financial system to control the amount of the money in the economy and this provided an avenue by which the Federal Reserve could regulate the supply of money within the economy (Roberts 254).

By this way, the Federal Reserve would easily control or influence the interest rates and encourage the American public to borrow money from the American Banking system, thus the individuals would spend the money in recurrent expenditures and speculation and encourage growth of the economy.

The net effect of this bailout would be stabilization of prices and interest rates, this way business and economic activities would increase steadily and this would reduce unemployment rates in the long run through encouraging repeated expenditure which will push companies into employing more individuals in order to expand their business.

Conclusion

The moves made by the American government and the Federal reserve contributed a lot towards ensuring that the American economy recovered from the recession more quickly and less scathed. Had the government not reacted as first as it did and used the available macroeconomic policies to bring the expansion effect in the economy at the time of the contraction, then not only would America be affected but the effects of the recession would have been even harder on other countries of the world.

Works Cited

Auerbach, Alan. “Fiscal policy in recession: US fiscal policy in Recession: what’s next?” CESifo Forum 2/2009. 2009. Web.

Colander, David. Macroeconomics, 8th Edition. New York: McGraw-Hill, 2009. Print.

Roberts, Michael. The Great Recession. New York: Lulu Enterprises Inc., 2009. Print.

Weaver, Frederick. Economic literacy: basic economics with an attitude. Maryland: Rowman & Littlefield Publishers, 2007. Print.

Introduction

Greece can find its way out of recession by ensuring that their debt ratio is reduced by increasing their GDP. Greece has a debt ratio of 174%, which is dangerous to its economy because its implication has gradual effect to the GDP of that country. In fact, Greece is cutting employees’ wages in order to reduce the amount of money indebted to other states. People have been threatened with reductions in credit ratings by the government with the aim of reducing debt ratio in Greece.

This country should come up with ways of cutting down taxes for people with potential to create jobs in order to boost their GDP. This means that investors should be encouraged to venture into its economy by tax exemptions and reductions. This can attract potential investors into the economy hence boosting their GDP; therefore, debts ratio will come down, and the country will be slowly getting out of recession.

Body

Greece should embrace production of substitute products in order to take advantage of the cross-price elasticity of demand. This is where price increase for one product decreases its demand and increases demand for its substitute in the market. This means that the GDP of Greece will keep on growing because the country sells products all the time.

When demand for certain products goes down, that of substitute products goes up increasing revenue generation. This can be immensely helpful for this country as it struggles with recession because continuous production, which contributes to the Gross domestic products, reduces the debt ratio hence easing recession.

Greece relies on foreign investors who own up to 70% of the Greek government bonds. This means that premiums are paid to people who develop their countries, as opposed to facilitating the development in Greece. The Greek government should come up with a policy of ensuring that money circulates within its economy hence leading to growth in GDP.

This means that it should restructure its system to ensure that its citizens own majority of government bonds since they are the tax payers. As a result, part of the money paid as dividends to citizens end up in government treasury in the form of taxes either directly or indirectly.

The Greek government has failed to control its financial markets for long due to poor leadership policies. This government has experienced rising bond yields affecting its economy in a great way. In fact, in the year 2010, their sale of treasury bills was oversubscribed.

This means that the demand in financial markets was higher than expected, and this was hectic for the finance personnel in Greece. They had to seek assistance from European Union to lower their cost of financing their public debt, which kept on hitting on the bond market.

Conclusion

In order to tackle this problem, the Greek government should seek advice from successful countries within EU. This is important because all its neighboring countries are economically doing well, therefore, can be of considerable help to Greece. The administration should consider hiring financial experts to advise them on how to tackle recession effectively.

Greece should embrace activities that contribute to the Gross Domestic Product in order to deter the increasing debt ratio. This is essential because, GDP and debt ratio are inversely related hence increase on one leads to decrease on the other. Finally, the government should be able to come with a strategic plan aimed at pulling the country out of recession.

Introduction

United Kingdom’s GDP fell in 2012and raised a fear of possible recession with regards to the data on economic performance. As a matter of fact, the pound which is the main exchange currency sank significantly. Besides, the British government bond prices rose significantly upon release.

The PMI suddenly fell from the previous figure of 50.5 to 47.9 within the twelve months of 2012 (Oxlade 2012). Thus, this reflective treatise attempts to explicitly review the background information on possible reasons for the recession, its effects to the economy, policies for reversing the recession, and effectiveness of these policies.

Reasons Why UK is Experiencing Recession

Despite a series of campaign by the authority to boost lending, approval of mortgages dragged. As indicated in the UK central bank data for the year 2012, “mortgage lending grew by 147 million pounds, the smallest increase since August, also less than forecast” (Oxlade 2012, p. 2).

Basically, the sudden plunge in the output of factories that contributes 10% of the total GDP could be another possible reason for the recession. This plunge contributed to a negative economic growth of 0.1%. The finance minister blamed the ‘Chinese New Year Holidays’ as a serious disruption that might have triggered trade delays in addition to decline in demand in the housing sector since the pound currency was very unstable.

As indicated in the above data, it is apparent that the UK’s economy is operating below the full employment. Unemployment level caused by recession creates disequilibrium in the market, that is, there is a surplus supply with a corresponding lowerdemand for commodities and factors of production. The disequilibrium state pushed the market rates down resulting in high cost of production and high cost of outputs.

This caused an increase in prices of goods and services. With increased prices of goods and services, consumers’ real wealth: in terms of purchasing power, decreased thus, decreasing the aggregate consumption in the UK economy. As consumer expenditure decreases, the level of aggregate demand also decreases until the full employment level of output is attained (Uwasu 2006). However, this was not possible in the economy of the UK.

How Recession Affected the Economy of UK

In the middle of the last decade, UK’s economy had the largest structural deficit as compared to other European economies. In 2012, the manufacturing industry that formed its backbone was hard hit since these industries are often very sensitive to business cycle changes.

The government of UK opted for heavy expenditure to support the 2012 Olympic Games. Unfortunately, this did not work and instead, the deficit of this country increased un-proportionally to the GDP (The World Bank Group, 2012). As opined by Neuhaus (2006) “strong capital accumulation has driven the growth process in the transition countries” (p. 8). However, this is not the case in the UK due to recession.

Rather, due to large public debt, the long term economic growth is likely to be compromised since the factors of products will eventually become very expensive and not competitive since this economy has to trade with competitors such as China that has relatively affordable factors of production (Mankiw, 2007).

As a matter of fact, “economic growth is primarily explained by the accumulation of physical capital and labor” (Neuhaus 2006, p. 23). This should be balanced with the current market requirements to meet the demand threshold. Thus, from the above reflection, technological process of the UK is likely to be compromised in the long run and demand and supply sides of the economy will operate at deficit parameters as factors of production such as labor, capital, and raw material of the manufacturing industry becomes very scarce (Sercu 2011).

In addition, the exogenous progress as a result of competitive advantage may seriously be compromised as investors will opt to move to more friendly economic zones away from the UK. Due to the retarded growth rate of the UK’s GDP as a result of the recession crisis, the quantity of the economy’s capital stock of physical nature and input of labor will cause decomposition of the residual growth characterized by unstable Total Factor Productivity.

In addition, UK’s performance of total employment units as a measure of economic will perform dismally in the long term since reduced capital will influenced reduction on ‘man hours’ of work and lowered income forlabor payment is often based on the units of labor provided as a factor of production (Neuhaus 2006).

Policy Recommendations

The government should incorporate Coincident indicators in the explicit review of the economy. They are expansive series that measure aggregate economic movement. This is because they change approximately concurrently as the whole economy. Some of coincident indicators are trade sales, production, employment, manufacturing, and personal income. Through tracking these changes, the government will be in a position to predict and create appropriate responses to swings in the economy.

The government of the UK should adopt an expansionary production economy model in the major industries in the UK. As a result, the delicate exposure of the UK’s economy to competitive trade with neighboring countries will increase its entities by hundreds of billions of pounds in the long run.

Due to increased entities, the GDP will substantially increase as factors of production, productivity and competitive advantage in trade will increase massively. Same as the views of Mankiw (2007), economic growth is mainly defined by the national GDP which comprises of the balance sheet of factors of production against returns.

At the present, UK’s factors of production such as labor, capital and raw material have become unstable due to the recession as a result of uncontrolled public debt, currency instability, and discretionary economic policies. In the long run, these factors are likely to lead to hyper-inflation, serious unemployment and lowered productivity. Through expansionary production economy model, the UK government will salvage the economy from further plunge into recession cycle (The Telegraph 2013).

Often, stimulating the economy requires combined use of both monetary and fiscal policies. The UK government should stimulate this economy by using fiscal policies. Fiscal policy entails the use of taxes and government spending to stimulate the economy. To increase consumer spending in the economy, the government should put in place tax cuts.

Reduction of tax increases consumers’ disposal income thus increasing spending. An increase in consumer spending increases demand for goods and services (Mankiw 2007). This creates an upward pressure on the supply. It in turn leads to expansion of production thus, creating employment opportunities.

As an austerity measure, the government of the UK should respond to the recession crisis through cutting the public expenditures in the economy. Decreasing government spending decreases the purchasing power in the economy in the long run. This leads to an increase in aggregate demand in the economy. An increase in aggregate demand causes expansion of production lines, thus opening the economy to expansionary growth.

Policy Effectiveness in the UK Economy

Reflectively, demand and supply are the fundamentals of economic growth analysis as the interaction of the market to economic swings such as the UK recession may lead to stagnant growth in the GDP. The law of demand and supply works in opposite ways in the sense that, when the prices of commodities changes, demand and supply also change in opposite direction holding other factors constant (The World Bank Group 2012).

The magnitude of change of demand and supply depends on the economic climate besides the nature of the industry and the dynamics of the market. Tax cuts and reduced public expenditure will stimulate the economy since an increase in aggregate demand causes expansion of production lines, thus opening the economy to expansionary growth (Albert 2009).

Expansionary production economy model policies result in improved investments in the economy. As the capital stock appreciates due to increased investments since the cost of factors of production are made affordable, this economy is likely to gain a long term boom due to massive appreciation that can offset the balance between investments and returns. Besides, the marginal product of capital in this economy will increase above the current negative GDP growth (International Monetary Fund 2008).

Moreover, due to increase in labor as a result of increase in the capital stock, the income of this economy is likely to increase tremendously as output per production factor is positively influenced by expansionary investment (Siddidui 2005). The expanding labor force will ultimately increase labor efficiency at macro level of the UK economy in the long run.

Reference List

Albert, R. 2009, The Conference Board: Business Cycle Indicators Handbook. Web.

International Monetary Fund 2008, World Economic Outlook: Advanced Structural Reforms, IMF, Washington.

Mankiw, N. 2007, Principles of Economics, Thomson Higher Education, Mason.

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