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[INSERT TITLE HERE] 1 [INSERT TITLE HERE] Student Name Allied American University Author Note This paper was prepared for [INSERT COURSE NAME], [INSERT COURSE ASSIGNMENT] taught by [INSERT INSTRUCTOR’S NAME]. Part I Directions: Please write a paper that is at least two to three pages in length in which you address the question below. Write your paper in APA format with at least one peer-reviewed scholarly reference. Please utilize the LIRN library to help you get started with your research. You may visit the Academic Resource Center for a guide on how to utilize the LIRN library successfully.

1. In the most recent recession of 2008 and 2009, the United States saw a declining GDP, rising unemployment, and, sometimes, deflation. Please describe these variables during the 2008 and 2009 recession and in the subsequent years. What type of fiscal and monetary policy is appropriate to fight the recession? Analyze these using the Phillips curve and economic theory. Research and describe some of the policies that were used by the U.S. government and central bank. Were these policies successful? Part II: Final Reflection Paper 1. Using the LIRN library, search for an article on fiscal and monetary policy and the negative impact policy can have on the equilibrium of prices. Then, identify ways that a free market society can avoid the negative impact and maintain both production and price. Your submission must be at least two pages in length and in APA format.

Sample Paper For Above instruction

The 2008-2009 financial crisis marked one of the most severe economic downturns in recent U.S. history, characterized by significant declines in Gross Domestic Product (GDP), surges in unemployment rates, and periods of deflation. Understanding these variables within the context of economic theory helps delineate the effectiveness of fiscal and monetary policies employed to combat the recession.

Economic Variables During the 2008-2009 Recession

During the recession, GDP contracted sharply, reflecting a significant slowdown in economic activity. According to the Bureau of Economic Analysis, GDP decreased by approximately 4.3% from 2008 to 2009, signaling a deep recession (BEA, 2020). Unemployment rates escalated from around 5% in 2007 to over 10% in 2009, leading to widespread economic hardship. Concurrently, deflationary pressures emerged temporarily, with prices for goods and services declining as consumer confidence eroded and demand dwindled.

This scenario aligns with the Phillips curve, which posits an inverse relationship between inflation and unemployment. During the recession, the trade-off manifested as high unemployment coincided with low or negative inflation. However, the Phillips curve's applicability becomes ambiguous during such extreme economic fluctuations, as advocated by Friedman (1968), who argued for the long-term neutrality of monetary policy.

Fiscal and Monetary Policies Implemented

The U.S. government adopted expansive fiscal policies, including the American Recovery and Reinvestment Act of 2009, which entailed targeted government spending, tax cuts, and infrastructure projects aimed at stimulating demand (Congressional Budget Office, 2010). Simultaneously, the Federal Reserve employed accommodative monetary policy by cutting interest rates near zero and launching quantitative easing programs to inject liquidity into financial markets (FOMC, 2009).

These measures aimed to shift aggregate demand rightward, counteracting the decline in private sector spending. The policies had varied success; GDP growth resumed in 2010, and unemployment gradually decreased, although the recovery was slow and uneven. Some critiques argue that these policies led to long-term budget deficits and increased public debt (Roubini & Mihm, 2010).

Analysis of Policy Effectiveness

From an economic theory perspective, Keynesian economics supports such interventionist policies, asserting that government spending can mitigate downturns by compensating for private sector contraction (Keynes, 1936). The use of quantitative easing aimed to lower long-term interest rates, encouraging borrowing and investment.

Nevertheless, the lingering effects of extensive monetary expansion raised concerns about asset bubbles and inflationary pressures, which necessitate cautious policy calibration. Overall, the policies were broadly successful in stabilizing the economy but with notable trade-offs, including fiscal sustainability challenges.

Maintaining Price and Production in a Free Market

Research indicates that the negative impacts of fiscal and monetary policies on price equilibrium can be mitigated in a free-market society through competition, transparent markets, and deregulation. A free market allows prices to adjust according to supply and demand, preventing distortions caused by government interventions (Mankiw, 2014). Ensuring that production is driven by consumer preferences and competition helps maintain equilibrium without persistent inflation or deflation.

Mechanisms such as reducing barriers to entry, protecting property rights, and encouraging innovation foster resilient markets that can correct imbalances naturally. Additionally, maintaining flexible labor and product markets enables adjustments to shocks more smoothly, preserving both production levels and price stability (Friedman, 1962).

Conclusion

The 2008-2009 recession underscored the importance of balanced fiscal and monetary policies aligned with economic theories like Keynesian and classical models. While interventionist policies helped stabilize the economy, their long-term impacts necessitate cautious application. Additionally, fostering a competitive, deregulated market environment can help avoid negative impacts on price equilibrium and sustain economic growth. A nuanced approach blending policy interventions with free-market principles appears optimal for maintaining economic stability.

References

• Board of Governors of the Federal Reserve System. (2009). FOMC Minutes. Retrieved from https://www.federalreserve.gov/monetarypolicy/fomcminutes20091216.htm
• Bureau of Economic Analysis. (2020). National Economic Accounts. Retrieved from https://www.bea.gov/data/gdp/gross-domestic-product
• Friedman, M. (1962). Capitalism and Freedom. University of Chicago Press.
• FOMC. (2009). Federal Reserve monetary policy strategy. Federal Reserve Bulletin, 95(1), 57-59.
• Friedman, M. (1968). The Role of Monetary Policy. American Economic Review, 58(1), 1-17.
• Keynes, J. M. (1936). The General Theory of Employment, Interest, and Money. Palgrave Macmillan.
• Mankiw, N. G. (2014). Principles of Economics (7th ed.). Cengage Learning.
• Roubini, N., & Mihm, S. (2010). Crisis Economics: A Crash Course in the Future of Finance. Penguin Books.
• Congressional Budget Office. (2010). The Economic Impact of the American Recovery and Reinvestment Act. Retrieved from https://www.cbo.gov/publication/52112