The Great Moderation: The Period Between 1980 And 2000

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The period between 1980 and 2000 displayed extra ordinary macroeconomic stability, and became known as the great moderation (Investopedia, 2016). The years from 2001 to 2007 lie between two remarkable, but very different episodes and U.S. economic history. In 2001 our economy was faced with a mild recession. It was caused by the Dot.com bubble, 9/11 attacks, and the outrageous accounting scandals. The Fed intervened by implementing new credit into the economy, pushing interest rates to their lowest, even after inflation rates started to rise in 2014. This caused a boom to be created by monetary inflation. In December 2007 on the other hand, caused the great recession. A period of economic financial turmoil not seen in the U.S. since the great …show more content…
Contractionary monetary policy slows the rate of growth and money supply or completely decreases the money supply in order to control inflation (Hubbard, R., & O’Brien, A., 2015). Sometimes it can slow economic growth, increase unemployment, and decrease borrowing and spending by consumers and businesses. In the 2000’s mild recession the government increased the money supply to control inflation. This expansionary monetary policy makes us wonder if the Fed had not changed the emphasis it put on inflation versus the output in the estimated rule or if it had not drifted from the behavior presented by that rule, would the macroeconomic condition leading up to the great recession have turned out differently? The main purpose of discount lending is to ensure short term financial stability to prevent bank panics and the sudden collapse of financial institutions experiencing a financial crisis, such as the 2001 9/11 attacks. Discount lending was greatly increased. Also, right before the 2007-2009 great recession discount window loans amounted to about 1 billion and then by October of 2008 it peaked to about 100

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