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Recession is the period when trade activities in a country decline temporarily; this period is associated mainly with consecutive fall in GDP. From 2007-2009 in U.S. a fall in G.D.P was the main indicator of the recession. In 2007 the GDP has fallen by 0.9% compared to the previous year, the fall continued to 2009.At this point with a lowest GDP Of -2.8% (Bourguignon, François, and Boris Pleskovic 761). Inflation rate was increasing at period. In regard to the model by Hubbard and O’Brien, it’s clear that there was an increase in employment rate, as a result of price increase and less increase in GDP.

The state intervened during this period of recession by providing fiscal and monetary policies to improve the economy and enable it to recover. The Monetary Policies used were the Asset Backed Commercial Paper Money Market, Term Asset Backed Security Loan Facility (LALF) and Mutual Fund Liquidity Facilities (MFLA) The TALF was objected to promote economic growth, by stimulating consumer spending. American Recovery and Reinvestment Act was the main fiscal policy applied. The government assisted those businesses that were affected and those at a risk of bankruptcy with funds to enable them recover. Companies assisted were required to the government to show how the funds were allocated in the business, and be transparent in indicating the operations of the business (Hubbard, Jerzy , Anthony and Matthew 871)

The main solid exports by the US were electrical equipment, production of vehicles, manufacturing of aircrafts and their parts that according to the statistics show a decline in exported goods. This had adverse effect on trade relations, due to the fall in GDP, less exports and this led to fall in exchange rate of US. Implementation of effective fiscal and monetary policies may lead to quick economic recovery, and rise in the currency exchange rate of a country (Bourguignon, François, and Boris Pleskovic 671)

 

Works cited

Bourguignon, François, and Boris Pleskovic. Annual World Bank Conference on Development Economics Regional 2007.

 

Hubbard, R G, Jerzy D. Konieczny, Anthony P. O'Brien, and Matthew Rafferty.Macroeconomics. , 2014.Print.

From the professor:

You make some good points, but I'm not sure what you mean by "inflation rate was increasing at period". Also, the most commonly accepted definition of a recession is a decline in GDP for two consecutive quarters (not necessarily involving trade activity). What did exchange rates do during this time period? In general, could you clarify and expand your post?