ECONOMIC RESEARCH PAPER

Economic Research Paper

Abstract

The recession that began in late 2007 was long and deep. It is expected to verify to be the poorest economic contraction since the 1930s (but still much less critical than the large Depression). The slowdown of financial undertaking was moderate through the first half of 2008, but at that issue the weakening economy was overtaken by a foremost financial urgent situation that would exacerbate the financial flaw and accelerate the decline. Recent evidence proposes that the method of financial recovery has begun. Real gross household product (GDP) has been on a positive pathway since mid-2009. The supply market has retrieved from its lows, and employment has advanced moderately. On the other hand, important financial flaw remains evident, particularly in the work and lodgings markets. In the usual post-war business cycle, smaller than usual growth throughout the recession is quickly pursued by a recovery period with overhead usual growth. This overhead usual growth serves to hasten up the reentry of the unemployed to the workforce. Once the economy comes to promise output (and full employment), growth comes back to its normal development route where the stride of aggregate expending advances in step with the stride of aggregate supply. There is anxiety that this time the U.S. economy will either not return to its pre-recession development path but possibly stay permanently below it, or come back to the pre-crisis route but at a slower than normal pace. Problems on the supply edge and the demand edge of the finances may lead to a weaker than usual recovery.

Economic Research Paper

Background

Severity of the 2008-2009 Recession

The recession that began in late 2007 was long and deep. It is likely to prove to be the worst economic contraction since the 1930s (but still much less severe than the Great Depression). The slowdown of economic activity was moderate through the first half of 2008, but at that point the weakening economy was overtaken by a major financial crisis that would exacerbate the economic weakness and accelerate the decline. (Elwell, 2007) When the fall of economic activity finally bottomed out in the second half of 2009, real gross domestic product (GDP) had contracted by nearly 4.0%, or by about $500 billion.

The decline in economic activity was much sharper than in the two most recent recessions, in 2001 and 1990 respectively. The most recent recession of similar severity was in 1973 in which real GDP fell about 3.2%. (However, the recent decline falls well short of the experience during the Great Depression when real GDP decreased by 30%).

As output decreased the unemployment rate increased, rising from 4.6% in 2007 to a peak of 10.1% in October 2009 and remaining only slightly below that high into 2010. The U.S. unemployment rate has not been at this level since 1982, when in the aftermath of the 1981 recession it reached 10.8%, the highest rate of the post-war period. (During the large despondency, the job loss rate come to ...