Recession

The 2008 financial crisis disrupted both the financial system and everyday economic activity. As banks cut back on lending, businesses struggled to borrow for daily operations and expansion.

Picture a small furniture factory that depends on loans to buy raw materials. Without access to loans, the factory finds it hard to purchase inputs. As a result, production slows, and workers may be laid off.

This example shows what many firms experienced. When banks reduced lending, production slowed, and workers were laid off across many industries.

At the same time, households grew more cautious. Falling home prices reduced household wealth and made people feel poorer. So they cut back on spending.

When households reduced spending, factories, stores, and service providers all felt the impact. Production dropped, incomes fell, and unemployment rose.

Job losses further reduced household spending, deepening the recession.

From December 2007 to June 2009, the U.S. economy went through what became known as the Great Recession. GDP fell, and unemployment increased.

The effects rippled worldwide.