Since the mid-1900s, the United States (U.S.) has experienced ten noteworthy recessions (BLS, 2012). The recession in the most-recent memory has been coined the Great Recession, and it officially lasted from the end of 2007 through the middle of 2009 (BLS, 2012; Economic Policy Institute, n.d.). Keynesian supporters promote government intervention when economic conditions weaken in order to reestablish consumer confidence, encourage spending, and promote economic growth (Gaber, Gruevski, & Gaber, 2013). At large, at the various levels of government within the U.S., Keynesian economics are utilized in response to economic declines (Gaber et al., 2013).
Fiscal policies aimed at economic expansion can come at a great cost to taxpayers, but a lack of response may as well. In an effort to establish the effectiveness of fiscal policies implemented following the Great Recession, the long-term economic impacts of such policies have been evaluated. This paper provides the framework for establishing the appropriate fiscal policy response to economic recessions in the future. The remainder of the paper is structured as follows. Background information relative to the Great Recession will be followed by a reflection on the pertinent extant literature evaluating fiscal policy measure success. Once an understanding of the issues to be evaluated is known, the problem, purpose, and significance of the study will be discussed. Finally, a detailed discussion on the approach to, and findings of, the study is included.
Generally, a recession is an economic decline or a decrease in activity in the economy (BLS, 2012). The recession at the forefront of Americans’ minds is the Great Recession which has been noted to be the lengthiest “since the Great Depression” (Auerbach, Gale, & Harris, 2010, p. 158). There are numerous potential causes of the Great Recession and the effects are vast and ongoing. In response to the economic impact of the Great Recession, the U.S. government instituted various fiscal policies in an attempt to repair the economy. The causes and effects of the Great Recession, along with the government’s response, offers a comprehensive background for the research study conducted and provides the foundation for this paper.
The reported causes of the Great Recession are innumerable. It is also likely the Great Recession was the result of a combination of various factors. Nevertheless, some of the commonly cited causes merit discussion.
Housing bubble. Many have suggested the Great Recession was the result of the bursting of a sizable housing bubble caused by a rise in house prices over several years to levels that were unsustainable (Economic Policy Institute, n.d.; Pollock, 2011). In fact, from 1996 to 2007, housing prices increased by more than 70% (Baker, 2010). Promoting home ownership became the goal of lending institutions as unique lending options provided buyers access to funds they typically would not qualify for (Baker,...