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The Fiscal and Monetary Policy and Economic Fluctuations - Essay Example

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The economy of the United States is still experiencing the effects of the great recession that happened five years ago though it is slowly picking up. Findings from a study on the economy of the country showed that the economy was growing at a rate of about two percent annually…
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The Fiscal and Monetary Policy and Economic Fluctuations
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Download file to see previous pages The report further indicated that most businesses had embraced the use of machinery and computers in their operations. The outcome of this was that it affected the labor industry negatively in that people lost jobs as a result of being replaced with machines (Krugman, 2003).
In the past five years, the U.S. underwent a great recession period. This period saw a huge drawback in the economy of the country since it recorded high cases of unemployment, high interest rates and a rise in inflation. This is because during the recession period, people were dependent on loans that were being offered by the banks to conduct their business and other operations of investments (Buti, 2003). The recession caused credit markets to stop funding cheap mortgages that were being offered to the public. Home owners were then faced with difficulties of repaying the loans due to the high interests that were imposed on them. This in turn made many individuals default on payment that caused banks to collapse due to them suffering enormous losses (Gramlich and Wood, 2000). The collapsing of banks resulted in detrimental effects to the economy of the country as it was brought to a halt. This is because the growth of the economy was dependent on credit loans that were used for investment purposes that in turn helped boost the economy (Krugman, 2003).
Most Americans lost their jobs during the recession period. In fact, studies conducted indicate that about 8.8 million individuals lost their jobs as a result of the great recession. This can be equated to between $50,000 to around $120,000 in loss per household (Buti, 2003). However, the drain in the economy was stopped by the Federal and Congress bank who intervened by offering loans with low interest rates. This took place between 2008 and 2009 (Krugman, 2003). From that time to date, banks are still reluctant to lend money to potential investors. This is due to fear of them ...Download file to see next pagesRead More
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