Great Recession

Definition

The Great Recession was a severe global economic downturn that began in late 2007 and lasted until mid-2009, characterized by significant declines in consumer wealth, widespread unemployment, and a sharp drop in economic activity. This crisis fundamentally changed the relationship between the executive branch and legislative bodies as they worked together to address the economic challenges through various policies and stimulus measures.

5 Must Know Facts For Your Next Test

1. The Great Recession was largely triggered by the collapse of the housing market and risky lending practices associated with subprime mortgages.
2. Unemployment rates soared to levels not seen since the Great Depression, peaking at around 10% in October 2009.
3. In response to the recession, the federal government enacted several major pieces of legislation, including the American Recovery and Reinvestment Act of 2009, aimed at stimulating the economy.
4. The recession had global repercussions, leading to economic downturns in many countries around the world and prompting coordinated international responses.
5. The financial sector faced immense challenges, with major banks failing or requiring government bailouts, which led to increased scrutiny and regulatory reforms post-recession.

Review Questions

• How did the Great Recession influence executive-legislative interactions in terms of economic policy responses?
  • The Great Recession led to heightened cooperation between the executive branch and Congress as they sought to address the economic crisis. The urgency of the situation prompted rapid legislative action, with both branches working together on stimulus packages and financial regulations. This collaborative approach aimed to restore public confidence and stabilize the economy through bipartisan efforts, demonstrating how crises can reshape the dynamics of power and interaction between these branches.
• What role did TARP play in mitigating the effects of the Great Recession, and how did it reflect executive-legislative relationships during this period?
  • TARP was a critical component of the U.S. government's response to the Great Recession, providing funds to banks and financial institutions in distress. This program illustrated a significant moment of executive-legislative interaction where Congress had to approve substantial funding quickly. The bipartisan support for TARP reflected a recognition of the need for swift action to prevent further economic collapse, highlighting how economic crises can lead to unusual alliances and legislative compromises.
• Evaluate the long-term impacts of fiscal stimulus measures enacted during the Great Recession on future executive-legislative interactions regarding economic policy.
  • The fiscal stimulus measures enacted during the Great Recession had lasting impacts on future executive-legislative interactions. These measures demonstrated the effectiveness of government intervention in stabilizing an economy during a crisis, shaping expectations around fiscal policy moving forward. As both branches learned from this experience, future interactions have been characterized by an ongoing debate about the balance between government intervention and market forces, influencing subsequent policies on taxation, spending, and regulation. The precedent set by these actions continues to resonate in discussions about how best to respond to economic challenges.

Related terms

Subprime Mortgage Crisis: A financial crisis that occurred when high-risk mortgage borrowers began defaulting on their loans, leading to a cascade of failures in financial institutions and triggering the Great Recession.

TARP (Troubled Asset Relief Program): A program enacted in 2008 that allowed the U.S. Treasury to purchase toxic assets from banks to stabilize the financial system during the Great Recession.

Fiscal Stimulus: Government spending and tax cuts implemented to stimulate economic growth during times of recession, which were heavily used during the Great Recession to boost economic activity.