Question

The Great Recession was the most serious economic downturn in U.S. history since the Great Depression. The recession began in December 2007. Interest rates at the time were very low, close to zero. Despite the American Recovery and Reinvestment Act of 2009, a nearly $800 billion fiscal stimulus and an expansionary monetary policy, the economy is only now getting back to normal in 2015. In retrospect, what set of macro policies, if anything, should we have conducted to achieve a better recovery? Explain your reasoning. Be sure to address the arguments favoring active versus passive policymaking as they relate to your discussion. Where appropriate, cite examples from your text or other readings.

Answer 1

ANSWER: Here, the most important factor which was led to the fall of the US economy was the sub-prime crisis or the housing bubble which was common in the years precedding to the recession in 2007. Also the housing bubble was present in the system from 2004 to 2007 and when the bubble was first burst in 2007, then it lead to a recession.

Therefore, it is necessary to prevent these sort of bubbles in the economy rather than change the monetary policy when the bubble bursts.Hence it is mandatory to ensure that the companies like Fannie Mae and Freddie Mac don't sell securitized junk home loans to the companies like Lehman brother that led to fall of the latter in the economic collapse or shutdown.

I personally feel tweaking the monetary policy and measures such as quantitative easing will be only one thing that acts as a remedy to this problem. Also what i believe is preventing the problem is much more important rather than curing it when it has already took place.Hence what i conclude is, i won't change the long term money and the fiscal policies due to the crisis and will take steps to prevent such crisis not to happen in the future.

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