Global recession and credit crunch The financial crisis of 2007-08 had wide effe

Question

Global recession and credit crunch

The financial crisis of 2007-08 had wide effects on the real economies across the globe. Falls in asset prices made many people worse off and led to falls in consumer spending. Companies found it harder to get the bank loans they needed to finance their current production. World trade contracted sharply, as did investment. Unemployment rose, as did personal and corporate insolvencies. In other words, the financial crisis led to a recession.  

In their struggle to recover from the post - 2008 global recession, many nations expanded their money supply and lowered interest rates to levels near zero, with the aim of stimulating both consumer spending and corporate investment.  

From summer 2007, central banks, including the US Federal Reserve and the Bank of England, became increasingly proactive in injecting liquidity into the financial system. This process of increasing the size of the money supply is quantitative easing. For example, the Fed has injected some $2.3 trillion into its quantitative easing programme.    You are required to answer the below questions. Include the answers in your individual business report.

. 1-Explain what a business cycle is and what the phases of business fluctuations are.                                                                                                              (5 marks))

. 2-Explain what sorts of government macroeconomic policies are available to governments and how each policy affects the business activity.          (5 marks)

. 3-From the brief outline above, identify the main macroeconomic policy the governments of US and UK applied to recover from the post - 2008 global recession. Explain your answer.                                                                  (5 marks)

. 4-Select an economy and assess the effectiveness of its government macroeconomic policies post 2007-08 financial crisis 5marks

Explanation / Answer

A Keynes rightly said A trade cycle is composed of periods of good trade characterised by rising prices and low unemployment percentage, altering with periods of bad trade characterised by falling prices and high unemployment percentage. The phases of trade business fluctuations are 1 prosperity,2 recession, 3 depression, 4 Recovery

B. Broadly speaking there are two types of policies available with govt-monetary policy and fiscal policy. Monetary policy can be used to contract or expand business activity. Expansionary monetary policy means a policy in which govt supplies more money in the economy thereby reducing interest rate and increasing business activity. Due to higher money supply interest rate falls and investment cost reduces. Further people find more money with themselves. As a result they increase demand for goods. These two effects stimulate economy

In tight monetary policy the monetary authority or govt reduces money supply. As a result interest rate rises and investment becomes costly. Further more people's income reduce. As a result they reduce demand for goods. This tight policy is used to control inflation and peak of a business cycle when economy hots too much

Fiscal policy is also of two types. To stimulate demand and Business govt cuts taxes and increases expenditure. Due to low taxes people and Business increase demand as their disposable income increases. govt expenditure increases income of private sector and creates additional demand in economy. This results in stimulation of business activity. This policy is called expansionary fiscal policy

During inflation govt increases tax and reduces expenditure. This decreases demand and prices are controlled. The result is economic stability. This policy is called contractionary fiscal policy

C From above it is clear that USA and UK used expansionary monetary policy. The text talks about expanding money supply and lowering interest rates to levels near zero.. Central banks became proactive in injecting liquidity into the system fed injected 2.3 trillion US dollars These are all tools of expansionary monetary policy or what in other words is called quantative easing

According to chegg policy can't answer parts which are quite different from each other. Please send 4th as separate question. Would love to help you. Please specify from now onwards length of answer

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.