The 2008-2009 Financial Crisis which is commonly known as the housing-bubble threw the United States but other international economies into a severe recession. The first crackle of this panic was the credit boom in mid-2007. This was all influenced based on the rapid growth in credit accompanied by unstrict standards and regulations. Following the credit boom was the meltdown of subprime mortgages and other types of financial securitized products. The complexity and interlinked factors behind the rise of the 08-09 were the loosening of monetary and fiscal policies. GDP is the broadest gauge of economic condition, it is the natural place to start in analyzing the business cycle (Mankiw, 2009, pg 276). The Great Recession started late 2007 which was the peak of the business cycle. The peak of the business cycle is described as when business activities have reached a temporary maximum, the economy is near
full employment, and the level of real output is close to the economys capacity. The third quarter of 2007 to the third quarter of 2008 the economic production of goods and services was approximately flat (Mankiw, 2019 pg 275). Real Gross Domestic Product (GDP) plunged sharply after the end of 2007 by 4.3% to trough of 2009 (Figure 1). Analyzing the decline in GDP, the major variables to look at are the consumption and investment panel. The shaded bar in the graph represents periods of a recession. The relationship between consumption and investment are positively related. In the period of 08-09, there is a steep decline in consumption and investment. (Figure2 : a & b). When the economy heads into a recession, households, firms, and government respond to the fall in their output by consuming and investing less which has a negative affect in business generating revenue, forcing them to layoff employees.