The U.S. macroeconomy has experienced many booms and recessions since the beginning of the 20^thcentury, and perhaps in pursuant of the Employment Act of 1946, the federal government has

implemented notable policies aimed at stabilizing the fluctuations.1 Following an economic boom

during the 2000s, the economy experienced a contraction that ultimately led to the Great Recession

from December 2007 to June 2009 (Rich, 2013). As the financial crisis expanded globally, the Federal

Reserve pursued unconventional policies that were geared towards supporting the financial system.

Now, more than a decade later, we have an opportunity to recall the macroeconomic environment

before and after the government's intervention and discuss the impact of these policies on a firm in the automotive manufacturing industry.

This analysis report examines the market outcome for the General Motors Company (GM) before and

after the government's intervention and discusses whether there were preventative measures that

could have improved market outcome for one of the largest automotive manufacturing companies.

Description of this Report

This analysis report (1 to 3 pages) describes the U.S. macroeconomy before, during and after the

financial crisis from 2007 to 2008, and explores the impact of the crisis and subsequent government

policies on the market outcome for GM.

The discussion questions below, which guides the analysis, should be clearly answered in the report.

Discussion Questions

1.Briefly describe GM's position in the global market prior to 2007. In your description, discuss two risk

factors impacting GM prior to the Great Recession. For example, one of GM's risk factors was

maintaining high fixed costs and low flexibility in the management of its variable costs - labor costs.

In your discussion on the two risk factors, elaborate on this risk factor (high fixed costs and low

flexibility in the management of its labor costs), and provide and discuss an additional risk factor.

Also include in this description a brief explanation about the relationship between GM and the

health of the economy.

2.Describe the macroeconomic environment during the two-year period, 2007 to 2009. In your

description, discuss observed changes to two key indicators (or measures) that highlighted the

declining health of the economy. For example, one observed change is the sharp increase in

commodity prices. Elaborate on the change in commodity prices and discuss another key

indicator which also pointed to financial stress within the U.S. economy.

3.Given the macroeconomic environment in 2007 to 2008, what were the two possible policy

responses by the Federal Reserve. Be sure to be specific about whether the response is an increase,

decrease or no change in a specific measure. For each policy response, state the main concern

being addressed with the policy, and describe the expected macroeconomic outcome. Also, for

each policy response, state the impact it would have on GM and its operations.

4.Hindsight decision. Given the policy or polices that were implemented and focusing on the two

risk factors discussed in question 1, what preventative actions could GM have incorporated prior to

2007 and/or in anticipation of the government's policy response that would have helped its position

during and after the crisis. Be sure to Include a brief discussion on the government policies

implemented and whether these policies had the intended impact on the macroeconomy.

General Format

Introduce the analysis by describing GM's global position, and the U.S. macroeconomic environment

prior to the financial crisis. Then, using the changes in key macroeconomic indicators, describe the U.S. economy during the financial crisis. Discuss the federal government's policy options aimed at stabilizing the economy, and the resulting impact on the macroeconomy. Conclude by examining the policy or policies that were implemented and the impact on GM's market outcome. Also include whether there were any preventative measures GM could have implemented prior to financial crisis that would have lower the impact of the financial crisis.

Rich, Robert (2013, November 22). The Great Recession - December 2007 - June 2009. The Federal

Reserve History.https://www.federalreservehistory.org/essays/great-recession-of-200709