Author’s Name

Class’ Name

Professor’s Name

Name of the School

City and State

Due Date of the Paper

Impact of 2008 Financial Crisis on U.S. Economy


The 2008 financial crisis had long-term and wide ranging implications for the economy of the United States and since then has been at the centre of media attention for past few years. The crisis significantly affected the personal finances of American citizens. The financial crisis also had other consequences on the lives of Americans, including people who were not affected directly by the troubles caused by the crisis. The persistent and deep losses from the economic recession forced the government to make large cuts in public workforces and spending (USDTA, 2014). Due to the economic recession, businesses faced trouble with their worker compensation and expansion plans. Similarly, for individuals in America, recessions meant that they were forced to postpone their future and plans of buying houses and start their families. According to one estimate of the Federal Reserve, the total economic loss of the recession was close to US $14 trillion during 2007 to 2009. The impact of the worst economic recession since the Great Depression of 1929 forced changes on the state governments and the economy that would linger for decades (Grovum, 2013).

Impact on U.S. Economy

Unemployment Rate

Labor has been a starting point for understanding the economic condition of a country, during the recession period United States faced increased rate of unemployment. The increase in unemployment rate decreases the pay benefits and compensation benefits for most employees. The unemployment rate of the United States that used to be below 5 percent before the crisis, reached around 10 percent during the peak period of the economic recession (Dufour & Orhangazi, 2014, p.4).

Interest Rate

The United States Federal Reserve cut their interest rates multiple times during the recession to make the borrowing affordable and encourage investment and consumption (World Bank, 2014). The interest rates reached record low to better the borrowing capacities of banks and lenders to generate income for the government. Despite several cuts in the interest rates, the United States economy failed to overcome the economic dip and it was reduced to less than 2 percent in 2010 (O’Connor, 2008).

Economic Growth Rate

The United States economy suffered the repressions of economic recession with decreased GDP that resulted in the negative economic growth rate. With decrease in exports and domestic production, the economy oversaw decrease in the rate of economic growth. The term recession relates to the decline in economic activity that includes trade. The economic turbulence in the United States economy disrupted the global economy and caused slowdown that dragged the economic growth rate below 0%. It took few years for the economy to recover and by the year the GDP growth reached positive numbers (World Bank, 2014).


During the recession period the United States economy faced fall in the inflation rate because of the low confidence of consumers in the United States economy. Global recession reduces the demand for commodities and reduces the commodity prices, thus forcing a decrease in the inflation rate. The inflation rate continuously decreased during the 2007-09 period of recession, signifying the low level of confidence consumers has on the United States economy (World Bank, 2014).

Gross domestic product

When the recession hit the United States in 2007, it brought with it a decrease in the GDP growth rate between the years 2007 to 2008. The real face of recession was faced with the decrease in GDP between the years 2008 to 2009, when the GDP fell from 14.71 trillion US dollars to 14.41 trillion US dollars. The impact of economic turbulence was witnessed in the decreasing GDP of United States as the demand for commodities and manufacturing output started to decrease and unemployment rates started to increase between the 2007 to 2009 period (World Bank, 2014).

National Income

Similar to the GDP, the national income of the United States started falling between the 2007 to 2009 period. The United States economy faced decrease in the national income due to the increased unemployment, closure of several production units, decreasing confidence among consumers, reduced income of the Federal Reserve and economic turbulence. The national income fell for the first time in years, between the periods of 2008 to 2009, reflecting the negative effects of the recession (World Bank, 2014).

U.S. Government Policy

The United States government tackles the issue of economic recession with the American Recovery and Reinvestment Act (Recovery Act). The Act was the most crucial countercyclical stimulus in the American History. The Act comprised of $787 billion in government spending and tax cuts, with the total spread between tax cuts, aid and recession. American families received close to $200 billion in relief payments and tax cuts. In addition, investment projects ranging from bridges and roads to clean energy manufacturing and smart electrical grid also were introduced. The US government also worked with the FDIC and Federal Reserve to repair the financial system in place. In addition, the administration worked towards stabilizing the housing market and managing the tide of ongoing foreclosures (CEA, n.d.).


The economic recession of 2008 crippled the United States economy with the effect clearly shown in the decreasing unemployment rate, interest rate, growth rate, GDP, national income and inflation rate. The country needed the investment from the United States government to bail the country’s economy out of the turbulence. It took few years for the country’s economy to stabilize with the government intervention helping the economy to stand on its feet again after the horror of the 2008 economic recession. The aftereffects of the recession are still felt by the American economy and the government took certain steps through the Recovery Act that ensured that in future their economy would not face similar crisis that was created by their own mistakes.


Council of Economic Advisers. (n.d.). Treatment and Prevention: Ending the Great Recession and Ensuring that It Doesn’t Happen Again. Available: Last accessed 21 December 2014.

Dufour, M & Orhangazi, O. (2014). Capitalism, Crisis and Class: The United States Economy After 2007-2008 Financial Crisis. Available: Last accessed 21 December 2014.

Grovum, J. (2013). 2008 financial crisis impact still hurting states. Available: Last accessed 21 December 2014.

O’Connor, P. (2008). US Federal Reserve cuts interest rates as recession deepens. Available: Last accessed 21 December 2014.

USDTA. (2009). The 2008-2010 Financial Crisis and How It Affected US Citizens. Available: Last accessed 21 December 2014.

World Bank. (2014). Adjusted net national income (current US$). Available: Last accessed 21 December 2014.

World Bank. (2014). GDP (current US$). Available: Last accessed 21 December 2014.

World Bank. (2014). GDP growth (annual %). Available: Last accessed 21 December 2014.

World Bank. (2014). Inflation, GDP deflator (annual %). Available: Last accessed 21 December 2014.

World Bank. (2014). Real interest rate (%). Available: Last accessed 21 December 2014.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s