The Economic Recovery Going Forward

Nowadays, there are a lot of developed and developing countries in the world. A country is considered to be well-developed if it has a developed economy, which mainly determined by a high rate of GDP per capita. However, reaching once a high level of GDP does not presuppose that this country is indeed developed. This level should be more or less consistent over time, which refers to economic stability. There a wide variety of factors influencing economic stability of a country. The most important are a low inflation rate and an absence of fluctuations in output growth. Nevertheless, according to a business cycle theory a country can face a recession which is followed by an economic recovery. This process is very important since it brings the economy to its pre-recession condition and can be slowed down by different factors.Economic Recession of 2008 – 2009 The U.S. economy came up against a recession during 2008 – 2009 which was prolonged and deep, and is considered to be one of the most severe after the Great Depression. It started from a housing market growing to a deep recession which later on was exacerbated by financial crisis. Such a twist of fate indeed came as a surprise to policymakers and macroeconomists since nobody predicted it. It is partially due to the “Great Moderation” period which followed the crises of the 1970s and 1980s. The problem is that this term means a reduction of the macroeconomic volatility over the several last decades. It was ascribed to structural changes in macroeconomic policy and actions taken during the last years. As a result policymakers considered the US economy as stable which appeared to be incorrect. There are also macroeconomic factors which caused the recession, as Katkov (2011) stresses. Due to the structural changes in the US economy the number of people working in goods production decreased, and, in turn, the number of people working in services production increased significantly. It led to a new kind of problem that the growth of consumption should be financed, and the solution found at that moment was a housing market development. It started in 1980s and in thirty years time, namely in 2007, the household debt and GDP were almost equal. As a result the saving rate fell from 10 percent to only 0.6 percent in 2007. Furthermore, by 2009 the GDP decreased by more than 5% and the output gap reached 8%. Such changes brought the increase of unemployment which was only 4.6 percent in 2007 and constituted 10% in 2009. However, the recession did not stopped at this point. As it was said before, the whole situation was exacerbated by the financial crisis. It led to the decrease in household wealth and the increase in risk premium in the investing in general.Monetary and Fiscal Policies Response to the Recession To deal with the crises and to bring the economy to its pre-recession condition both monetary and fiscal policies were taken. Speaking about the monetary policy it should …