Great Recession

Definition

The Great Recession refers to the severe worldwide economic downturn that began in 2007 and lasted until around 2009, characterized by significant declines in consumer wealth, severe disruptions in financial markets, and widespread unemployment. This period is often considered the most serious global economic crisis since the Great Depression of the 1930s, and it had lasting impacts on economies, policies, and social dynamics around the world.

5 Must Know Facts For Your Next Test

1. The Great Recession was triggered by the collapse of the housing bubble in the United States, leading to a sharp decline in housing prices and an increase in mortgage defaults.
2. Global financial markets were heavily impacted, with major institutions facing bankruptcy, such as Lehman Brothers, which filed for bankruptcy in September 2008.
3. Governments around the world responded with stimulus packages and monetary easing policies to mitigate the effects of the recession and promote economic recovery.
4. Unemployment rates reached historically high levels during this period, with millions of jobs lost and long-term unemployment becoming a significant issue.
5. The Great Recession led to significant changes in financial regulation, including the Dodd-Frank Act in the U.S., which aimed to prevent future financial crises.

Review Questions

• How did the subprime mortgage crisis contribute to the onset of the Great Recession?
  • The subprime mortgage crisis was a major catalyst for the Great Recession as it exposed vulnerabilities in the financial system. Financial institutions had engaged in risky lending practices by providing loans to borrowers with poor credit histories. When these borrowers defaulted on their mortgages en masse due to rising interest rates and declining home values, it triggered a wave of foreclosures. This led to a collapse in housing prices, causing significant losses for banks and investors, which ultimately spiraled into a full-blown economic downturn.
• Discuss the impact of government interventions like TARP on economic recovery following the Great Recession.
  • The Troubled Asset Relief Program (TARP) was one of several government interventions aimed at stabilizing the economy during the Great Recession. By purchasing toxic assets and providing capital injections to banks, TARP helped restore confidence in the financial system and prevented further bank failures. This intervention was crucial in allowing banks to resume lending and facilitate economic activity. While TARP faced criticism for bailing out financial institutions, it ultimately played a role in laying the groundwork for recovery as it helped to stabilize key sectors of the economy.
• Evaluate the long-term social and economic consequences of the Great Recession on global economies and policies.
  • The Great Recession had profound long-term consequences that reshaped economies and social structures worldwide. Economically, many countries experienced slow recoveries characterized by stagnant growth and increased inequality. Socially, high unemployment rates resulted in increased poverty levels and altered perceptions about job security, leading to a generation facing economic uncertainty. The crisis also prompted significant regulatory reforms aimed at preventing similar crises in the future, such as stricter oversight of financial institutions. Overall, the repercussions of the Great Recession are still felt today in discussions about economic policy and social welfare.

Related terms

Subprime Mortgage Crisis: A financial crisis that occurred when homebuyers with poor credit histories were given loans that they could not repay, leading to widespread mortgage defaults and foreclosures.

TARP (Troubled Asset Relief Program): A program created by the U.S. government in 2008 aimed at purchasing toxic assets and injecting capital into banks to stabilize the financial system.

Unemployment Rate: A measure of the number of people actively seeking work who are unable to find employment, which spiked significantly during the Great Recession.