3. Suppose that U.S. government actively uses the fiscal policy to fight against recession and rising unemployment. To incorporate this behavior of government into the model, let
Solution
Recession of 2008 was surely one of the greatest economic cycles of our lifetime.
This recession was unique in its own way, The tools that are available for fed reserve to fight recession were very limited, Usually there are two tools central banks usually have to get out of recession,
1. Lowering interest rates
2, Decreasing Cash reserve ratio
The problem with american economy was that intrest rates were already lower and further lowering them had very less impact as there were no banks in such a strong position to lend in the first place,
Decreasing cash reserve ratio was one option but it would hurt the already hurt banks baseline.
Unemployment is the immediate product of recession and people found that it is much harder to find jobs and they just went ahead and become claimants of state benefits.
Central bank did what all it can to counter recession and unemployment but their ability was limited because of structure of developed economy.
.
3- Suppose that U-S- government actively uses the fiscal policy to fig.docx
1. 3. Suppose that U.S. government actively uses the fiscal policy to fight against recession and
rising unemployment. To incorporate this behavior of government into the model, let
Solution
Recession of 2008 was surely one of the greatest economic cycles of our lifetime.
This recession was unique in its own way, The tools that are available for fed reserve to fight
recession were very limited, Usually there are two tools central banks usually have to get out of
recession,
1. Lowering interest rates
2, Decreasing Cash reserve ratio
The problem with american economy was that intrest rates were already lower and further
lowering them had very less impact as there were no banks in such a strong position to lend in
the first place,
Decreasing cash reserve ratio was one option but it would hurt the already hurt banks baseline.
Unemployment is the immediate product of recession and people found that it is much harder to
find jobs and they just went ahead and become claimants of state benefits.
Central bank did what all it can to counter recession and unemployment but their ability was
limited because of structure of developed economy.
