Economic recessions are some of the most taunting moments that the economy of a country can go through. It is a period where the economy is crippled and the related fields turn to a downward spiral. Definitively, a recession is viewed as a temporary decline of the economic stature of a country where trade and industrial activities are reduced significantly. In a recession, therefore, the economy is depreciating with the manufacturing industries, banking, and commerce sectors being the greatest casualties. Recessions are usually undesirable since they cause economic instability and an imbalance in the association between different sectors in a country. For this reason, solutions to recessions often ought to be found hastily.
Case Analysis
Main Causes of the Great Recession
The best approach to establishing a solution to a problem is by first analyzing the problem. In this case, the problem is the economic recession that the US Federal Reserve chairman seeks to solve. The occurrence of a recession depends on the sectors and industries that constitute the most Gross Domestic Product (GDP), which is again synonymous with the cash flow of a country (economy) (Lok, 2017). Since the US is the country that is in the context of the analysis, it is crucial to define the economic structures that would have contributed to the recession phenomenon. The economy of the US is quite diverse. Many industries pump billions of dollars into the GDP every day. All these industries are instrumental in the formation of a stable economy. However, an upset in one of them could consequently affect other industries as well.
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In the US, manufacturing, banking, and commerce are the key players in determining the stability of the economy. Therefore, in the case of the Great Recession, these are the industries that were affected most. From the outlook of the definition of a recession is, it is correct to state that the great recession was caused by the downward spiral winding of the performance and output of the manufacturing, banking, and commerce sectors. This is because these are the main pillars of the US economy and most of the GDP is attributed to these sectors. Therefore, a solution that aims at solving the recession phenomenon should be tailored to effectively surge the performance and output of these sectors and industries (Whalen, 2011).
Solution Analysis
Assessing the Quantitative Easing Solution
Quantitative Easing, as proposed by Ben Bernanke, includes the acquisition of assets to increase the quantity of money in the economy. It is an effective method of solving the incumbent problem since it addresses the issues at hand and rejuvenates the economy. In Japan, the model reduced the short-term interest rates to almost zero. It is necessary to point out that the Federal Open Market Committee, in its bid to mitigate the effects of the recession, had lowered the federal funds rate from 4.25% to 1%. However, this move did not prove effective since the economic indicators continued to stagnate instead of showing a surge.
While Quantitative Easing may be an instrumental model to use, there are important things to point out regarding its comparative application with Japan. One thing is that the economic structure of Japan and the US are not the same. Also, the major contributors to the Japanese GDP and those of the US are not the same. Lastly, the demographic structure of Japan and the US are a bit different. Therefore, applying Quantitative Easing in the entire US demography may be a challenge. Also, Ben Bernanke’s model is an academic theory that he hopes to prove through its application in the incumbent Recession Situation. For these reasons, I feel that Quantitative Easing, despite being a good solution, may not be very effective in solving the problem.
Proposed Solution and its Application
A great solution would be based on the problem. As stated, a recession is caused by the decline in performance of the main industries of an economy. Again, there was an outlook on the most crucial economic structures of the US, which include manufacturing, banking, and commerce. My solution, for these reasons, aims at stimulating output and performance in these sectors. The performance of the manufacturing and commerce industries depends on the customer model and availability of input resources to propel production and trade. One of the solutions that I propose is to increase the number of exports. This could be done by reducing the rates and charges imposed on exports to make it easier for manufacturers and traders to grow their market model.
Intensifying the number of exports would increase the amount of cash in the economy. Also, this would have a significant impact on propagating elements of bulk production, which would further elevate output and the overall performance of the of the manufacturing and commerce sectors. Another solution that would be effective when integrated with the exports concept is availing cash in the economy. This concept mainly affects the banking sector. Cash is usually the most flexible capital. Availing cash can be done by reducing the interest rates on loans. The infusion of cash into the economy is a form of quantitative easing but from a small scale dimension. The integration of these two measures would adequately solve the problem
References
Lok, J. C. H. (2017). Whether Public Policy Can Solve Economic Recession . Create Space Independent Publishing Platform.
Whalen, C. J. (2011). Financial Instability and Economic Security after the Great Recession . Edward Elgar Publishing.
