How the demand side policies i.e. the fiscal and the monetary policies of the
Great Recession of
2008 have successfully improved the economy and reduced unemployment.
Introduction
The term monetary policies refer to the actions of the Federal bank that targets macroeconomic
objectives like for instance price stability, full or maximum employment and stable growth in the
economy. In the United States, the Congress makes the decisions and determines the monetary
policies ensuring that they are free of political interference and works closely with the Federal
Reserve. Fiscal policies refer to the tax and the expenditure policies and decisions of the federal
government. The fiscal policies are determined wholly by the Congress and its administration.
( Sullivan and Sheffrin, 2003).
The unemployment rate in the United States stood at 5% in the year 2008 rising to 10% at the
end of 2009 and registering a constant declining trend with slight fluctuations to 7.9% at the end
of the year 2012. (www. research.stlouisfed.org/publications/iet/) The GDP of the United States
of American was 3.8% in the year 2008 while the consumer price index was 5.2%. From the first
quarter of 2008 till the end of the second quarter in 2009, USA had a negative growth rate of
1.9%,
From the following information it’s obvious that some of the fiscal and monetary measures
taken by the Federal Reserve improved the economy in some sectors while in the other sectors
the results were not encouraging. For instance in the year 2008 and parts of 2009, when the US
economy recorded a negative 8% growth, www. research.stlouisfed.org/publications/iet/, the
employment level during that period was at an all time low which stood at negative 4% growth
while unemployment was at 10%. The composite of long term government bonds stood at 4.5%
while the three months CDs stood at slightly over 3% that nose dived to almost 0.1% by the end
of the year 2009 while the GDP was at its lowest growth negative growth of 4.5%.
In conclusion the overall effects of the monetary and fiscal policies were positive and they
contributed greatly in the recovery of the economy in subsequent years. The fiscal effects
affected the interest rates but were generally contained by the end of the year 2009.
3 Economics
References
Sullivan , Sheffrin, S (2003). Economics: Principles in action. Upper Saddle River, New Jersey
Pearson, Prentice Hall.
