Economic Recession of 2007-2009

Topics: Business cycle, Great Depression, Unemployment Pages: 3 (968 words) Published: April 5, 2014
The Economic Recession of 2007 to 2009
Recessions are a normal part of the business cycle, which constitutes of recurring expansion and contraction of the overall economic cycle associated with changes in employment, income, prices, sales and profits. A business cycle consists of four phases, which include peak, recession, trough, and expansion. Once an economy reaches the peak, which is the maximum point of economic growth, it contracts and initiates a period of recession. Some of the notable recessions in the world history include the great depression of 1930s, which economists attributed to the stock market crash of 1929, and the 1980s recession, which analysts attributed to the shocks in oil prices (Blair 67). The economic recession of 2007 to 2009 was a global crisis that became one of the most hotly debated issues among economists with its detrimental effects spiraling worldwide.

Globalization has led to a great interconnection of world economies, and an economic downfall in one part of the world is likely to have spillover effects on almost all other world economies. The extent of the spillover effects of an economic crisis in one country depends on the size of the economy as evident by the 2007 to 2009 recession, which began due to the dramatic increase in the issuance of highly risky mortgages by American banks and a surge in mortgage defaults (Cline 113). In the early 2000s, the anticipation by households, businesses, banks and other lenders that house prices would increase indefinitely encouraged households to buy highly priced houses as banks and other lender significantly lowered their rates. In this regard, there emerged various mortgage plans primarily aimed at low-income earners to induce then to buy homes. The collapse of America’s housing market caused a credit crisis, which began a national problem but spilled over to affect the entire world’s economy. The failure by borrowers to meet their monthly payments...

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