US Recession 2008

The  prospect of an imminent recession in the US becomes more likely despite the Fed’s bold moves to cut interest rates by 2% since the start of the year. Continual weakness in the housing market and the fallout from the credit crunch is undermining confidence and slowing down consumer spending. This slowdown is reflected in the growth in unemployment, especially in the construction and real estate sector.

In this essay, I have explained why the US is facing a recession.

As I often teach Monetary and fiscal Policy, I am quite interested to see how effective the attempts to avoid recession will be.

From a textbook perspective cutting interest rates and pursuing expansionary fiscal policy should increased Aggregate Demand and therefore increase economic growth. However, it is likely that the US may still go into recession, despite the attempts to increase AD. This shows a practical limitation of fiscal and Monetary policy. This is where you can get evaluation marks.

However, even if the US economy does go into recession, it would be fair to say that the recession would have been much worse, if they hadn’t tried to use expansionary fiscal and monetary policy.