THE RECESSION OF 2008

The Recession of 2008

TABLE OF CONTENTS

ABSTRACT1

THE RECESSION OF 20082

REFERENCES4

ABSTRACT

This paper discusses the recession of 2008 in depth. The factors responsible for the recession of 2008 have been discussed in detail in order to identify the basic reasons behind the global recession. This paper also deals with the negative impacts of recession of 2008 on U.S. market conditions such as the downfall of stock markets, decreased housing prices, etc. Some policy measures are also recommended in the paper in order to avoid such recession in future.

THE RECESSION OF 2008

The National Bureau of Economic Research (NBER), established in 1920, dated a recession as starting in December 2007. The recognition of this downturn came in December 2008. This somewhat unexpected delay was caused by the mixed signals being generated by macro-economic aggregates. While real GDP grew for the first two quarters of 2008, total employment had peaked in December 2007 and fell thereafter. (Woodford, 2009)

As noted, the U.S. housing market began expanding following the 1990 to 1991 recession. The housing boom continued even during the 2001 recession with residential investment declining only in 2001:4, after the trough of the recession was reached. Home prices kept rising and even accelerated through 2005. Home prices began falling as that sector was now characterized by both excess supply and falling demand. This had a variety of negative impacts on the economy, including a major decrease in financial wealth as the stock market plunged. During 2008, the market lost one third of its value by this measure. Not only was financial wealth cut as equities dropped, but many saw the value of their home falling. With this twofold wealth shock, consumer confidence in the economy dropped to historic lows. (Read, 2009)

The business and financial sectors of U.S. were also adversely affected during the recession ...