Great Recession

Definition

The Great Recession refers to the severe global economic downturn that lasted from late 2007 to mid-2009, marking the most significant economic decline since the Great Depression of the 1930s. This period was characterized by widespread financial instability, high unemployment rates, and dramatic declines in consumer wealth and economic activity, leading to profound changes in economic policy and regulations.

5 Must Know Facts For Your Next Test

1. The Great Recession officially began in December 2007 and lasted until June 2009, though its effects were felt for many years afterward.
2. Unemployment rates soared during the Great Recession, peaking at about 10% in October 2009 in the United States.
3. The housing market was severely affected, with millions of Americans facing foreclosure due to subprime mortgages and a steep decline in home values.
4. Government interventions, such as TARP, were implemented to stabilize financial markets and restore confidence in the banking system.
5. The recession led to significant changes in regulatory policies aimed at preventing future financial crises, including the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Review Questions

• What were some key causes of the Great Recession, particularly regarding the housing market?
  • One of the main causes of the Great Recession was the burst of the housing bubble fueled by subprime mortgages, which were given to high-risk borrowers. As home prices fell sharply, many homeowners found themselves owing more on their mortgages than their homes were worth. This led to widespread foreclosures, which not only harmed individual families but also significantly impacted financial institutions holding these toxic assets, triggering a broader financial crisis.
• How did government intervention during the Great Recession shape future economic policies?
  • Government intervention during the Great Recession included measures like TARP and quantitative easing. These actions aimed to stabilize failing banks and stimulate economic growth by injecting liquidity into financial markets. The response highlighted the need for stronger regulatory frameworks, ultimately resulting in reforms like the Dodd-Frank Act, which sought to increase oversight of financial institutions and reduce systemic risk in the economy.
• Evaluate the long-term impacts of the Great Recession on American economic structure and public perception of financial institutions.
  • The Great Recession had profound long-term impacts on both American economic structure and public perception. Many individuals lost trust in financial institutions due to perceived irresponsibility that led to the crisis. Economically, it resulted in shifts toward stricter regulations, greater scrutiny of lending practices, and a slower recovery that reshaped labor markets and income distribution. These changes also fostered a climate of skepticism toward Wall Street and heightened demands for accountability from banks and policymakers.

Related terms

Subprime Mortgage Crisis: A financial crisis that emerged from the collapse of the housing bubble in the United States, where high-risk mortgage loans were issued to borrowers with poor credit histories, ultimately leading to mass foreclosures.

TARP (Troubled Asset Relief Program): A program enacted by the U.S. government in 2008 to purchase toxic assets and provide financial assistance to banks and other financial institutions to stabilize the economy during the recession.

Quantitative Easing: An unconventional monetary policy used by central banks to stimulate the economy by increasing the money supply through the purchase of government securities and other financial assets.