1. Read the information presented on the two pages linked below

2. Make a journal entry comparing and contrasting the two recessions

• include:
  • short summaries of each recession
  • ways that the two recessions were similar
  • ways that the two recessions were different
  • similarities and differences in the policy responses to the two recessions

Reference:

The Great Recession Overview There was a large contractionary shift in AD real GDP fell sharply between the 4th quarter of 2007 and the second quarter of 2009, it fell 4.2% employment fell sharply from May 2007 to October 2009, unemployment rose from 4.4% to 10% Lead Up to the Recession Main cause: the housing market From 2002-2006 low interest rates on housing prevailed it was easy for subprime borrowers to get credit people who normally wouldn't qualify for loans received them government policies were enacted to increase homeownership lenders sold the mortgages to investment banks investment banks then created securities that were backed by the mortgages these were sold to other banks, insurance companies, and other investors these securities were viewed as being safe the belief was that housing prices "never fall" The Crash Between 2006 and 2009, the housing market crashed interest rates on houses rose homeowners were in contracts with variable rates rather than fixed rates millions of homeowners now owed more on the houses than they were worth millions of mortgages went into default and were foreclosed on banks sold off the foreclosures, which created a surplus of housing surpluses push prices down! new construction slowed and the construction industry was hit unemployment was 9.6% overall, but 20.6% in the construction industry the mortgage backed securities now became "toxic" investments there were heavy losses this led to widespread failures of banks and other financial institutions The Great Recession 2008-2009