Financial Crisis and Economic Downturn

Abstract

In the recent economic recession Federal Reserve (The FED) and Federal Government have preferred different methods to stimulate the economy. The key factor is the choice of financing each have following to implement their stimulus programs. The FED had opted to use quantitative easing (QE) in increasing money the FED expect to ease credit and investments by commercial banks hence improving the flow of money in the economy. The Federal Government have opted to use US Treasuries in paying vast fiscal stimulus programs to fuel the economy. Both are feasible for the objective each is trying to pursue, however both have long-term disadvantages on the economy. For this purpose the focal point of this paper is to discuss the stimulus programs. Findings show that the current recession is a combination of financial crisis in the banking system and an economic downturn. Hence there is a requirement for the implementation of both fiscal stimulus and countercyclical monetary policies to stimulate the economy.