Great Recession

Definition

The Great Recession was a severe economic downturn that occurred in the late 2000s, marked by a significant decline in economic activity, high unemployment, and financial instability. It had far-reaching impacts on businesses, financial institutions, and government policies.

5 Must Know Facts For Your Next Test

1. The Great Recession was the most severe economic downturn in the United States since the Great Depression of the 1930s.
2. The collapse of the U.S. housing market and the subprime mortgage crisis were major triggers of the Great Recession.
3. The Federal Reserve implemented various monetary policy tools, such as lowering interest rates and quantitative easing, to combat the economic effects of the Great Recession.
4. Governments around the world enacted fiscal stimulus measures, including tax cuts and increased spending, to boost economic activity and employment during the Great Recession.
5. The Great Recession had a significant impact on small businesses, leading to decreased access to credit, reduced consumer demand, and increased business closures.

Review Questions

• Explain how the Great Recession impacted small businesses in the United States.
  • The Great Recession had a significant impact on small businesses in the United States. During this economic downturn, small businesses faced decreased access to credit, reduced consumer demand, and increased business closures. The decline in economic activity and consumer spending led to a challenging environment for small businesses, forcing many to cut costs, lay off employees, or even shut down entirely. This had a ripple effect on the broader economy, as small businesses are a major driver of economic growth and employment in the U.S.
• Describe the role of the Federal Reserve in responding to the Great Recession.
  • The Federal Reserve played a crucial role in responding to the Great Recession. As the central banking system of the United States, the Federal Reserve implemented various monetary policy tools to stabilize the economy and promote recovery. This included lowering interest rates to encourage borrowing and investment, as well as engaging in quantitative easing programs to inject liquidity into the financial system. The Federal Reserve's actions were aimed at stimulating economic activity, reducing unemployment, and preventing a more severe economic crisis. The effectiveness of the Federal Reserve's policies during the Great Recession has been widely debated, but its interventions were seen as essential in mitigating the depth and duration of the recession.
• Analyze the relationship between the Great Recession and trends in financial institutions.
  • The Great Recession had a significant impact on the financial services industry, leading to a number of trends in financial institutions. The collapse of the housing market and the subprime mortgage crisis resulted in widespread losses and failures among banks, mortgage lenders, and other financial institutions. This led to increased regulation and oversight of the financial sector, as policymakers sought to address the systemic risks that contributed to the crisis. Additionally, the Great Recession prompted a shift in the business models and risk management practices of financial institutions, as they sought to adapt to the changing economic landscape. This included a greater focus on consumer protection, more conservative lending practices, and a heightened emphasis on financial stability. The trends in financial institutions during and after the Great Recession continue to shape the industry and its role in the broader economy.

Related terms

Subprime Mortgage Crisis: The subprime mortgage crisis was a major contributing factor to the Great Recession, involving the collapse of the U.S. housing market and the subsequent financial crisis.

Monetary Policy: Monetary policy refers to the actions taken by central banks, such as the Federal Reserve, to influence the money supply and interest rates in an effort to stabilize the economy during times of recession.

Fiscal Policy: Fiscal policy involves the use of government spending and taxation to stimulate the economy and promote economic recovery during a recession.