Lower state control in the monetary financial market generated certain market exuberances. The real estate sector investments in these economies were made for speculative purposes, which finally generated the property price bubble. Several banks collapsed due to failure of unproductive investment projects, thereby resulting in the recession in 2008. this was because aggregate money supply in the economy had fallen in these nations.
During the recession, as the aggregate supply of money in the U.K. had fallen, the degree of productivity in the economy had declined. The lower level of production of several goods and services had greatly increased the level of unemployment in the country.
It can be observed from the above graph that the extent of inflation in the U.K. had astonishingly increased during the recession in 2008. This was due to expansionary, monetary as well as fiscal policies adopted by regulating authorities of the country at that point of time (Hirsch, 2008). The authorities had implemented these policies for stimulating the depressed market of U.K.
In order to maintain the welfare of the European economy during the recession, its government authorities had adopted expansionary fiscal policies by increasing expenditure in the economy and lowering tax rates so as to enhance employment and output level of the country. Figure 4 in the Appendix shows the way in which fiscal policies attempt to revive an economy from the state of .recession. During the recession, fiscal authorities of the U.K. had considerably increased expenditure in the economy. it was as high as 45% of the total domestic production of the country. It was estimated that during 2011, the government of the country had invested a sum of £196bn for financing welfare-maximizing programs and unilateral transfers. .