`Describe one economic problem facing the American Economy such as unemployment, mortgage foreclosures, credit crunch, declining dollar and or increase of food and oil prices, from 2007 to the present. What fiscal and monetary policies have tried to addr

American Economy-Credit Crunch

Introduction

The world is experiencing a credit crunch which started in 2007 and has caused crisis in the financial sector with various governments and reserve banks intervening in an effort to contain this economic turmoil . Credit crunch is state in which interest rates are high and lending to businesses and consumers is constrained due to limited availability of cash . Over a period of time , it has been observed that credit crunch follow recession and this seriously stifle economic growth as a result of the decreased capital liquidity thereby

making it difficult for the productive sector of the economy to borrow . When businesses are not able to borrow in to expand their business operations , they stagnate and at times this result in bankruptcies . Such a situation leads to the unemployment increase , people lose homes and financial institutions close down thereby prompting governments and central banks to intervene in to solve the crisis

Governments ' intervention is through realignment of fiscal policies while reserve banks achieve this through adjustments in monetary policies . Fiscal policy involves the government changing the levels of taxation and government spending in to influence aggregate demand and therefore the level of economic activity (Economics Help 2009 p1 The objective of such intervention is reducing the rate of inflation stimulation of the economic growth during recession with the aim of stabilizing that economic growth . Monetary policy is the action of reserve or central banks that determine the size and rate of growth of the...