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Economics Essay Example: Great Depression of 2007-2008

3 pages
732 words
University of California, Santa Barbara
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In 2008, the greatest financial crisis to ever engulf the US since the 1930 Great Depression of occurred.

Credit institutions such as the Lehmann Brothers collapsed as other banks followed suit. This called for government intervention to try its hand in solving the issue which was disrupting the US banking industry (Marek, 2008). Thus, the United States Federal Bureau initially injected money into commercial banks reserves.

This effort was meant to augment money supply within the US economy. Moreover, the government established a ceiling on the interest rates the banks charged on borrowers. The primary reason was to ensure that loans were accessible by the parties within the market. Additionally, the government sued corrupt individuals who committed malpractices within the credit rating agencies (Marek, 2008). The government invested in more positive politics to attract investors to come to the country.

Reference: Examine who may be helped and who may be hurt by the selected government intervention.

The investors benefited from this intervention as they were provided with necessary conditions to enable them to get back their investment. Additionally, the banks revived through the intervention which was essential in their reconstruction too (Zwolankowski, 2011). However, speculators were the losers in the process. These are investors who took advantage of the depression and speculated to benefit from the crisis.

Reference: Examine externalities and/or unintended consequences of such intervention.

The government intervention in the 2008 recession that included low-interest rates resulted in delayed retirement, increased budget awareness, and investment in riskier classes of assets. Some Americans could not delay their retirement, because of for examplere health reasons, and opted to go for reduced payments offered by social security to resume retirement early. Moreover, Investment-grade bonds which have been traditionally termed as safe haven class of asset for investors is now affected by volatility which causes fluctuations and loss of value (Trujillo, 2014). The lack of saving as well as physical awareness could lead to another crisis.

Reference: Determine the cost trend of the intervention program since its implementation including whether costs are increasing, decreasing, or vary with the state of the economy.

Before the start (in 2007) of the crisis, the average fiscal cost was approximately 15% of GDP. After the crisis occurred, the fiscal costs connected with solving the financial crises were up to an average of 16% of GDP. Approximately half of the amount which is 8% of the outlets was associated with the costs linked to the government-assisted banks recapitalization (Zwolankowski, 2011). However, the cost of the program was higher between 2008 and 2010 but later decreased significantly.


5. Evaluate the success or failure of the intervention in achieving its objectives and develop conclusions.

The governments response to ensuring the Great Recession was handled included the most aggressive monetary and fiscal policies ever to be applied. It was a multifaceted as well as a bipartisan response that involved the Congress, Federal Reserve, as well as the two administrations (Blinder & Zandi, 2010). The program was a success as it achieved its primary objectives of lowering the interest rates and making it easier for investors to borrow.


6. Recommend whether the program should be continued as is, discontinued, or modified and defend your recommendation.

The program should be modified because, at some point, people refer to the policies as ineffective or misguided or both. However, this could be a long discussion, but with the economy still weak, a lot of government support could be needed. It is evident through unemployment benefits extension and considerations of further easing by the Fed (US Economic Indicators, 2017). Thus, the program can be modified as it was able to achieve its primary objectives.




Blinder, A. S., & Zandi, M. M. (2010). How the great recession was brought to an end (pp. 1-23). Retrieved from

Marek, P. (2008). Financial Crisis, Fall, and Financial Theory. European Financial And Accounting Journal, 2008(4), 4-5.

Trujillo, J. (2014). Unintended Consequences of Low-Interest Rates. Retrieved from

United States | Economic Indicators. (2017). Retrieved 7 September 2017, from



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