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Great Recession

Definition

The Great Recession refers to the severe worldwide economic downturn that occurred from 2007 to 2009. It was sparked by a crisis in the U.S. housing market and resulted in significant declines in asset prices and widespread unemployment. This period is considered the most serious financial crisis since the Great Depression of the 1930s.

Phonetic

The phonetic transcription of the keyword “Great Recession” is /ˈgreɪt rɪˈsɛʃən/

Key Takeaways

Main Takeaways about the Great Recession

The Great Recession was a severe worldwide economic downturn that occurred in the late 2000s and early 2010s. It was the most serious financial crisis since the Great Depression. Below are the three main takeaways:

  1. The Housing Market Crash: The recession was triggered by a downturn in the housing market, with the bursting of the United States housing bubble culminating in the subprime mortgage crisis.
  2. Global Impact: The Great Recession had a global impact, affecting economies around the world. It led to an increase in unemployment rates, a decrease in consumer wealth, and a decline in economic activity.
  3. Policymakers’ Response: Policymakers responded to the recession with unprecedented fiscal stimulus, monetary policy expansion, and the bailing out of important financial institutions. However, these measures were controversial and debated for their effectiveness and fairness.

Importance

The term “Great Recession” is significant in business and finance as it refers to the severe global economic downturn that took place from December 2007 to June 2009. It was the largest economic decline since the Great Depression of the 1930s. The recession resulted in drastic decreases in consumer spending and business investments, high unemployment rates and an overall contraction in economic activity. It prompted substantial intervention by central banks around the world, stimulating a series of debates on regulatory policies and leading to profound changes in the financial landscape globally. Therefore, understanding the Great Recession is crucial for economic analysis and policy-making aiming to prevent similar crises in the future.

Explanation

The term “Great Recession” is primarily used to describe the considerable economic downturn that occurred globally from late 2007 till mid-2009. It notably serves as a narrative tool to discuss and compare the contemporary financial climate with past recessions, as well as examine the causes, impacts, and policy responses to the distinguished financial crisis. The main purpose behind using the term “Great Recession” lies in effectively communicating the depth and breadth of the crisis, going beyond just a significant slowdown in economic activity, encapsulating a severe contraction of the global economic system, including a sharp rise in unemployment, fall in housing prices, and massive shrinkage of wealth.Moreover, the term is extensively used in economic studies, analytics, and policy-making to understand the systemic risks and vulnerabilities that led to the crisis and prevent its recurrence. It stimulates a thorough exploration of the underlying causes of the crisis, such as the subprime mortgage bubble, complex financial products, regulatory failures, and global imbalances, driving conducive changes in financial regulations and policies. Therefore, “Great Recession” is more than just a descriptor of the period; it serves as a tool for studying, learning, evaluating, and improving the robustness of the global financial system.

Examples

1. Housing Market Crisis: One of the most notable examples of the Great Recession was the 2008 housing market crash in the United States. In the run-up to the crash, house prices were inflated due to speculative behavior and risky mortgage lending practices. When the housing bubble burst, millions of homeowners defaulted on their mortgages, leading to widespread foreclosures. Banks and financial institutions holding these mortgages suffered huge losses, sparking a financial crisis that spread throughout the global economy. 2. Automobile Industry Bailout: Another major event during the Great Recession was the bailout of the U.S. automobile industry in 2009. The industry was hard hit by the recession, suffering from slumping sales and near-bankruptcy. The U.S. government stepped in with a $80 billion bailout to prevent the collapse of major car manufacturers such as General Motors and Chrysler, saving millions of jobs and allowing the companies to emerge from bankruptcy.3. Global Consequences: The Great Recession wasn’t only felt in the United States. Countries globally, such as Spain and Ireland, experienced severe economic downturns, high unemployment rates and government debt crises. For example, the Greek government-debt crisis was primarily the result of structural weaknesses in the Greek economy magnified by the global recession. This led to multiple bailouts, austerity measures and political unrest.

Frequently Asked Questions(FAQ)

What is the Great Recession?

The Great Recession refers to the severe worldwide economic crisis that took place from late 2007 to mid-2009. It was the longest and most severe recession since the Great Depression.

What caused the Great Recession?

The Great Recession started in the United States after the collapse of the subprime mortgage market and the bursting of the housing bubble. It led to a global banking crisis with the failure of several prominent banks.

Who was affected by the Great Recession?

The Great Recession had a global impact, affecting developed and developing economies. It resulted in increased unemployment, decreased consumer wealth, and a decline in economic activity.

What impact did the Great Recession have on businesses?

Businesses faced reduced demand for their products and services, leading to layoffs and budget cuts. Many small businesses closed, and even major industries faced bankruptcy.

How did the Great Recession end?

The Great Recession ended as economies slowly recovered through measures like stimulus packages, monetary policy adjustments by central banks, and structural reforms; however, its effects on jobs and income persisted for years.

What are some lessons learned from the Great Recession?

The Great Recession reinforced the importance of regulatory oversight in financial markets, the necessity of emergency savings for individuals, and the essential role of government in mitigating the effects of economic downturns.

How has the Great Recession influenced modern economic policy?

The Great Recession has led to increased emphasis on economic stability, resulting in tighter regulation of financial institutions, changes in monetary policy, and increased scrutiny of economic indicators.

How did the Great Recession affect global economies?

The Great Recession resulted in economic slowdown globally, with many countries experiencing severe recessions, increased unemployment, and significant fiscal deficits. Some nations experienced a sovereign debt crisis post-recession period.

What is the difference between a recession and the Great Recession?

A recession refers to any general downturn in the economy, whereas the Great Recession refers to a specific period of pronounced economic decline globally that occurred from 2007-2009.

How did the Great Recession affect individual households?

Many households faced financial hardships during the Great Recession, with millions losing their jobs, homes, and life savings. There was also a pronounced wealth gap post-recession as recovery was not uniform across all demographics and regions.

Related Finance Terms

  • Subprime Mortgage Crisis
  • Financial Crisis of 2008
  • Lehman Brothers Collapse
  • Global Economic Downturn
  • Stimulus Package

Sources for More Information

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