DEMAND SIDE POLICIES

Demand Side Policies and the Great Recession of 2008



Demand Side Policies and the Great Recession of 2008

Introduction

This discussion will shed light on the economic perspective of a recession and the manner in which Demand Side Policies influence the economy by considering their role and relevance in the recent economic recession. In conclusion, the discussion will elaborate on the extent to which the use of Demand Side Policies (fiscal policy and monetary policy) during the Great Recession of 2008 has been successful in restoring economic growth and reducing unemployment.

Discussion

The Economic Meaning of a Recession

A recession is a scenario in which there is an increase in the rate of unemployment supplemented with a decrease in GDP, investment spending, disposable income and firms' profit margins (Habeck, Kregel, Head & Yasuda, 2007; Azzoni & Kalatzis, 2010). The collapse of an economic bubble often results in a supply shock that eventually leads to the factors stated earlier.

Fiscal policies

The essential purpose of Demand Side Policies is to facilitate in bringing about a decrease in unemployment brought about as a result of a deficiency in demand (Azzoni & Kalatzis, 2010; Brennan, 2010). This purpose comes into play most significantly when the decrease in demand and subsequent unemployment are caused as a result of a recession. The influence of Demand Side Policies (Fiscal Policies in particular) is apparent in the form of an increase in the aggregate demand that comes about as a result of their implementation. This is brought about by reducing taxes and increasing government spending through amendments in the Fiscal Policy (Kandil, 2009; Daugbjerg & Sonderskov, 2012). The decrease in taxes helps the common man experience an increase in disposable income; thereby encouraging the general public to increase their consumption. This increase in consumption results in an increase in Aggregate Demand (Habeck, Hunt, ...