Question

The Great Financial Crisis (GFC) in the United States: Causes and Policy Responses

Goal

Analyze the recent (2008-2009) episode in the United States – the Great Financial Crisis (or Great Contraction). Your job is to write a 500-word essay that will: (a) discuss the antecedents to the episode – seeds of the crisis that were previously sown. Then, using the IS-LM model, show both (b) the shocks to the economy which occurred and (c) the government policy response. Also, provide a short discussion of the implications for health care business/industry.

Background

Although it happened some time ago, the Great Financial Crisis (GFC) of 2008-2009 continues to be heavily discussed, including in the popular press. For this assignment, you should read the article “A warning from the almost-depression” by Robert Samuelson, Washington Post, September 16, 2018. For several reasons, this episode is well-suited to the IS-LM model. Your job is to discuss that episode using the model.

PLEASE PROVIDE THE REFERENCES THAT YOU USED AND NO Plagiarism.

Answer 1

Crisis is a very important concept in discussions of economics science, political and strategic and has many examples. In the economic field, it involves rapid and dramatic rise of prices, production expanded reducing, sharp rise of unemployment, a sharp reduction in income, sharp reduction in the value of securities and etc. In the political field, it contains social revolts increasing, developed gap between government and citizens and in the field of strategic, crisis has examples such as military and coercive regime dealing with social groups or neighboring countries and other countries. So, when the word of "crisis" is used, it means that the security threat is in the last process its existence. Structural change is considered as one of the main consequences of the crisis. After emergence of the crisis, if there dos not be any measure to its roots and to make decisions about structural changes, crisis re-emergence should be expected. Necessity of structural changes is to prevent similar crises repetition or other crises. Crisis lead to new theories and also these theories create new structures. So, theories are result of crises and on the other hand, they are facing to the theoretical and practical challenges and crises. It is clear that theoretical challenges affects to new structures and newer structures occur. So, this process is continuous and permanent

The financial crisis stems from a failure in the functioning of the financial system. It is manifested in tremendous monetary losses, in the crash of financial institutions, in the loss of trust in the system, and in low financial supply (a slowdown in the flow of money). The lack of financial oxygen causes increasingly more companies to cancel projects and lay off workers. At the same time, the blow to private savings on the capital market and the loss of employment security cause the public to reduce spending on goods and services. Thus the real economic crisis is created, expressed in a sharp downturn of consumption and product, a rise in business bankruptcies, a reduction in the nations’ income from tax revenues, a sharp increase in unemployment, a rise in poverty, and so on.(Shmuel Even and Nizan Feldman,2009)

After September 11, 2001, recession was predicted in America (Gharib, 2008). Economic researchers such as Rathkopf argue that more attention to the terrorism and less to the finance and economy is the main reason of the current economic crisis (2008). In the years before the crisis, the Federal Reserve's expansionary monetary policy reduced interest rate. It seems that this policy was adopted in front of economy and market horror after the event September 11, 7 2011. Policy "a house for every American" that was a policies of the American President of that era with interest rate decline and international geopolitical risks increased real assets prices such as land, building, precious metals (including gold and silver), industrial metals and even oil.

Given the dominant economic position of the United State in the global economy, the US economic crisis that started in 2007 impacted both developed and developing economies and the panic situation that has prevailed since then has affected both credit markets and trade flows and consequently, has caused global recession (Akhtar Hassain, 2009). Figure 3 shows the movement of real GDP in the United States in period the beginning of the year 2007 and until the beginning of the year 2009. The shaded areas indicate the period of U.S. recession that started in December 2007. Once the recession started, the real GDP was at about 11,640 billions of chained dollars. The curve demonstrates slow growth and rather stable GDP until August. According to BEA (Bureau of Economic Analyses) GDP decreased at annual rate of about 5.5% during the first quarter of 2009 (Funa, University of Ljubljana, 2009).From the start of 2008 until April 2009 unemployment in the United States shot up from 4.9 to 8.9 percent. In May 2009 the number of those who claimed unemployment benefits reached a peak of 6.66 million. In March 2009, 130,831 bankruptcies were declared in the United States – a rise of 46 percent compared with March 2008 and of 81 percent compared with March 2007. From the beginning of 2009 until the middle of April, 25 banks failed in the United States, compared with 25 for all of 2008, and three for 2007. As a result of the crisis in the large economic sectors, the situation of other countries has worsened as well, and some have required assistance from the International Monetary Fund. In the first quarter of 2009 GDP in the US dropped 1.6 percent (compared whit the previous quarter). Other developed countries are experiencing a dramatic economic low. In Germany, for example, in the first quarter of 2009 the GDP dropped 3.8 percent (compared with the previous quarter); in Italy, 2.4 percent; in Britain, 1.9 percent; and in the France, 1.2 percent (Shmuel Even and Nizan Feldman, 2009).

This recession showed however economic theories are developed, new theories are necessary, at least in the financial sector. Moreover, relationship between economies of countries increases risks and threats; when a great economy like America economy is facing to a crisis, it is not only for that country. It could be global. So, new theories in international finance and economics are predicted.