Final projecthow did the great recession (2008) affect americas gdp

Definition and impact of the Great Recesstion on global economyThe Great Recession is a term used to describe the economic crisis that began in 2008 and lasted until 2009.. The impact of

UNIVERSITY OF ECONOMICS AND LAW

Table of Contents

SECTION I: INTRODUCTION 2

1.1 Definition and impact of the Great Recesstion on global economy 2

1.2 Thesis statement outlining how the Great Recession affected America's GDP 2

SECTION II: BACKGROUND INFORMATION - OVERVIEW OF THE GREAT RECESSION IN THE U.S 3

SECTION III: TERMINOLOGIES AND CALCULATIONS 5

3.1 Terminologies regarding calculating the US GDP 5

3.2 America's GDP data before and after the Great recession 6

a US’s economics before and after the Great Recession 6

b GDP calculation 9

SECTION IV: RESULTS AND EFFECTS ON GDP 10

4.1 Analysis of how the Great Recession affected America's GDP 10

4.2 Discussion of the decline in GDP growth rates and the rise in unemployment during the Great Recession 12

SECTION V: POLICY RESPONSES AND COUNTERMEASURES 14

SECTION VI: CONCLUSION 15

SECTION VII: PROGRESS RECORD EVALUATIONS 16

REFERENCES 16

[ How did the Great Recession (2008) affect America’s GDP? ]

1.1 Definition and impact of the Great Recesstion on global economy

The Great Recession is a term used to describe the economic crisis that began in 2008 andlasted until 2009 This recession was characterized by a severe and widespread decline ineconomic activity, a sharp rise in unemployment rates, and a significant drop in stock prices Theimpact of the Great Recession was felt around the world and was one of the most severeeconomic downturns in modern history

The first major impact of the Great Recession was a contraction in the global economy.Many countries experienced negative growth rates, and the world GDP fell by around 0.1% in

2009, marking the first contraction since World War II The recession was particularly severe indeveloped countries, including the United States and Europe The recession also resulted inwidespread job losses, with many people losing their jobs or being forced to work reducedhours The unemployment rate increased in many countries, and it took several years foremployment levels to recover

The recession was caused in part by a financial crisis, and it led to significant disruption infinancial markets Many banks and financial institutions failed, and there was a credit crunch,with businesses and individuals finding it difficult to access credit

Lastly, the recession affect the government and economic policies all round the world.Governments around the world took steps to address the recession, including implementingfiscal stimulus programs, cutting interest rates, and providing support to banks and otherfinancial institutions Meanwhile, the recession also led to a rethinking of economic policy inmany countries There was a renewed focus on regulation of the financial sector, and therewere debates about the appropriate role of government in the economy

1.2 Thesis statement outlining how the Great Recession affected America's GDP

One of the countries that has their GDP significantly affected was the America During therecession, GDP fell sharply, and it took several years for the economy to fully recover Therecession officially began in December 2007 and lasted until June 2009 During this time, theeconomy shrank for several consecutive quarters, and GDP fell by 4.3% from its peak in thefourth quarter of 2007 to its trough in the second quarter of 2009 (Robert Rich, 2013) Thisdecline in GDP was the largest since the Great Depression of the 1930s

The impact of the recession on GDP was felt across many sectors of the economy Forexample, the housing market, which had been a major driver of economic growth in the years

construction activity, which in turn led to job losses in the construction industry and relatedsectors The financial sector was also hit hard by the recession Banks that had invested heavily

in the subprime mortgages that fueled the housing market bubble saw their assets decline invalue, leading to a credit crunch This made it difficult for businesses to obtain the financingthey needed to operate, which led to a significant decrease in economic activity

The impact of the recession on GDP was felt for several years after the recession officiallyended Base on data.worldbank.org, in 2010, GDP grew by just 2.5%, which was below the long-term trend growth rate of around 3% In 2011, GDP growth was even lower, at just 1.6% Itwasn't until 2014 that GDP finally surpassed its pre-recession peak, signaling the end of theeconomic recovery

SECTION II: BACKGROUND INFORMATION - OVERVIEW OF THE GREAT RECESSION IN THE U.S

According to the National Bureau of Economic Research (the official arbiter of U.S.recessions), the Great Recession began in December 2007 and ended in June 2009, andtherefore lasted more than 18 months

After the Dot-com bubble burst in 2001 and the recession loomed large following theterrorist attacks of September 11, the US Federal Reserve System (Fed) took the monetarypolicy to save the economy from recession that is lowering the interbank overnight lendinginterest rate In just a short time from January 2001 to December 2002, the interbank interestrate decreased 11 times from 6% to 1.75% Secondary credit also reduces interest rates,stimulating the development of the real estate sector In an easy credit environment,commercial and investment banks have eased home loans for less reliable borrowers, calledsub-prime mortgages As a consequence, anyone can get a home loan, even if they are less ableand even unable to repay the loan

[ How did the Great Recession (2008) affect America’s GDP? ]

* Federal Funds Effective Rate in the U.S from 2001 to 2002

Low- interest rates caused many people to rush to buy houses, blowing up the real estate

"bubble" Rising house prices made banks feel safe to give money to those who could not paytheir loans because banks assumed that, if borrowers defaulted, they would foreclose on theirhomes for their value pushed higher According to the data, home prices in the US peaked bymid-2007 and began to decline After the real estate bubble burst, the FED announced to startreducing interest rates from September 2007 to October 2008 (from 4.96% to 2%) Faced withtight lending conditions, banks suddenly find themselves owning homes whose value is notenough to cover the value of the loans At the same time, not only do individuals have difficulty

in repaying their loans, but many credit institutions that lend to buy houses are also in a similarsituation because they cannot recover their debts

* Home price in the U.S from 2007 to 2008

* Federal Funds Effective Rate in the U.S from September 2001 to October 2002

In addition, the rapid decline in housing prices has resulted in collateralized debt obligations(CDOs) and mortgage-backed securities (MBS) issued by financial institutions The main issuer isseverely discounted U.S mortgage-backed securities, which carry risks that are difficult togauge, have been marketed around the world because they offer higher yields than U.S.government bonds Many of these securities were backed by subprime mortgages, which fell invalue when the U.S housing bubble burst in 2006 and homeowners began defaulting on largenumbers of payments mortgages began in 2007 As a result, these institutions' balance sheets

[ How did the Great Recession (2008) affect America’s GDP? ]

housing credit crisis broke out

The emergence of subprime lending losses in 2007 started the crisis and exposed other riskylending and overinflated asset prices With loan losses increasing and the collapse of LehmanBrothers on September 15, 2008, a great panic broke out in the interbank lending market Theequivalent of a bank operating on top of the shadow banking system has resulted in many largeand established commercial and investment banks in the United States and Europe such as BearSteams, Dow Jones, Fannie Mae, and Freddie Mac suffering heavy losses and even went to thebrink of bankruptcy Typically, it also witnessed the heavy collapse of Washington Mutual(WaMu) with total assets loss of up to 307 billion dollars in this period

Not only that, the Fed's pause in interest rate cuts (April 2008 - October 2008) made theglobal financial crisis worse

SECTION III: TERMINOLOGIES AND CALCULATIONS

3.1 Terminologies regarding calculating the US GDP

GDP stands for Gross Domestic Product and is a measure of the value of all goods andservices produced within a country's borders during a given period of time, typically a year There are three commonly used methods for calculating GDP: The Expenditure Approach: Thismethod adds up all of the expenditures made within a country's borders during a given period

of time This includes personal consumption expenditures, investment expenditures,government spending, and net exports The Income Approach: This method adds up all of theincome earned by factors of production within a country's borders during a given period oftime This includes wages and salaries, profits, rents, and interest The Production Approach:This method adds up the value of all goods and services produced within a country's bordersduring a given period of time, regardless of who produced it or where it was produced Thisincludes the value-added contribution of each firm in the production process

To calculate private consumption, economists typically rely on data about householdspending on goods and services This includes everything from housing and food totransportation and healthcare Investment, on the other hand, refers to spending by businesses

on capital goods like machinery and equipment Government spending includes everything fromsalaries for government employees to infrastructure projects like road construction Finally,exports and imports are used to determine the net balance of trade between a country and itstrading partners

The calculation of GDP (Gross Domestic Product) is an important metric in the study ofmacroeconomics It measures the total value of goods and services that a country produces

United States was fairly straightforward

In general, GDP is calculated using the formula: GDP = C + I + G + (X-M),

Where: C = private consumption

on capital goods like machinery and equipment Government spending includes everything fromsalaries for government employees to infrastructure projects like road construction Finally,exports and imports are used to determine the net balance of trade between a country and itstrading partners

3.2 America's GDP data before and after the Great recession

a US’s economics before and after the Great Recession

The Great Recession, which started in December 2007 and lasted until June 2009,significantly impacted the United States' gross domestic product (GDP) GDP is the total value ofgoods and services produced by a country in a given period, and it is a critical indicator ofeconomic health Before the Great Recession, the US economy was growing steadily, but therecession caused a sharp decline in GDP growth Let's take a closer look at America's GDP databefore and after the Great recession

Before the Great Recession: The US economy had been growing at a steady pace before theGreat Recession According to the Bureau of Economic Analysis (BEA), the real GDP growth ratewas 2.7% in 2006 and 2.0% in 2007 In fact, the US economy had experienced sustainedeconomic growth since the recession of the early 2000s, with real GDP growing at an averageannual rate of 2.3% from 2001 to 2007.During this period, the US was also experiencing highlevels of employment and low inflation rates To be precise, from 2005 to 2007, GDP increased

by an average of 2.9% each year However, in 2008, the economy began to slow downsignificantly, and GDP growth fell to just 0.4% By 2009, the country was officially in a recession,and GDP had fallen by 2.8% One of the key drivers of this decline was the collapse of thehousing market Prior to the recession, the housing market had been booming, with homeprices rising rapidly and demand for new construction at an all-time high

[ How did the Great Recession (2008) affect America’s GDP? ]

However, in 2007, the housing bubble burst, and home prices plummeted This had a rippleeffect throughout the economy, as homeowners suddenly found themselves underwater ontheir mortgages and banks began to fail Another factor that contributed to the recession wasthe credit crunch As the housing market collapsed, many banks and other financial institutionsfound themselves holding toxic assets and facing massive losses This led to a freeze in lendingactivity, which in turn made it difficult for businesses and consumers to access credit Inresponse to these challenges, the federal government implemented a number of measuresdesigned to stimulate the economy and prevent a full-blown depression These measuresincluded the American Recovery and Reinvestment Act, which allocated $787 billion in spendingand tax cuts, and the Troubled Asset Relief Program, which provided up to $700 billion insupport for the financial sector These efforts did eventually have an impact, and by 2010, the

US economy had begun to recover GDP growth rose to 2.5% that year, and continued toincrease in the years that followed

By 2014, GDP growth had reached 2.9% However, there were still significant challengesfacing the US economy, and many of these challenges persisted in the years that followed therecession For example, unemployment remained high, peaking at 10% in 2009 and remainingabove 7% until 2013 Even after the unemployment rate began to decline, many workers were

Another challenge facing the US economy after the recession was income inequality WhileGDP growth did eventually rebound, many Americans did not feel the benefits of that growth.Instead, the gains were concentrated among the wealthiest Americans, while many working-class families continued to struggle This led to a growing sense of frustration and anger amongmany Americans, which helped fuel the rise of populist politicians like Donald Trump

According to data from the Bureau of Economic Analysis, the nominal GDP of the UnitedStates in 2006 was $13.2 trillion, and in 2007, it was $14.0 trillion This represented a growthrate of 5.7% between 2006 and 2007 In terms of the components of GDP, consumption andinvestment were the largest contributors to growth in these years In 2006, personalconsumption expenditures (C) accounted for 71% of GDP, while investment (I) accounted for18% Government spending (G) accounted for 19% of GDP, while net exports (X-M) represented

a negative value, indicating that the United States was importing more than exporting However, the Great Recession hit the United States hard, and GDP fell dramatically in 2008 and

2009 According to the Bureau of Economic Analysis, nominal GDP in 2008 was $14.3 trillion,but in 2009, it fell to $13.9 trillion This represented a contraction of 2.8% between 2008 and

2009 The components of GDP also shifted during the Great Recession Personal consumptionexpenditures (C) and investment (I) both fell, while government spending (G) increased Netexports (X-M) also shifted from a negative value to a positive value, indicating that the UnitedStates was exporting more than importing However, the United States was able to recoverfrom the Great Recession, and GDP began to grow again in 2010 According to the Bureau ofEconomic Analysis, nominal GDP in 2010 was $14.8 trillion, representing a growth rate of 3.0%between 2009 and 2010 In 2011, nominal GDP grew to $15.5 trillion, representing a growthrate of 4.2% Since the Great Recession, the United States has continued to experience growth

in GDP In 2019, nominal GDP reached $21.4 trillion, according to the Bureau of EconomicAnalysis Consumption (C) and investment (I) continue to be the largest contributors to GDP,while government spending (G) and net exports (X-M) have remained relatively stable