Question

The great recession started in 2008 but it did not become a second great depression

Answer 1

There were following policy initiatives, that ensured that 2008 recession did not become a second great recession.

1. Fed and the government opted for the Keynesian approach that relied a strong government intervention with monetary policy support that led the economy to recover. In great depression of 1930s, classical approach was in dominance and government & Fed played a role of wait and watch. It created depression in 1930s.

2. Government came up with a big stimulus plan of over $780 Billion and further relief programs for the troubled assets. Here, each sector was covered with detailed initiatives to ensure that there is no repeat of 1930s' depression.

3. Fed came up with expansionary monetary policy with FFR up to 0% that increased money supply and promoted investment and consumption spending.

4. Fed and government, complemented each other in helping economy recover. It was a persistent effort that led the economy to recover.

Above initiatives helped prevent the repeat of second great depression.