Kent Griffith
Blog Post #2
4/24/16
American Recovery
and Reinvestment Act of 2009
The American
Recovery and Reinvestment Act of 2009(ARRA) was a stimulus package to respond
to the effects of the Great Recession. The Great Recession was a period of
economic downturn that effect world markets in the late 2000’s. After the
recession numerous people lost jobs and no longer could pay for health
insurance or their bills. It was considered one of the worst global recessions
since World War II. The primary objectives of the ARRA were to keep and create
jobs. It included expansions to the unemployment benefits and social security
programs. Secondary objectives were to
provide temporary relief programs and to invest money into the country’s
infrastructure, education, health and energy. The reasoning for the ARRA comes
from the basis of the Keynesian theory that states that during a recession the
government should counterbalance the decrease in private spending with an
increase in public spending in order to save jobs and improved market outcomes.
The ARRA can
be considered an expansionary policy because it increases the money supply. The
intent of the policy was to boost jobs and to help jumpstart the economy. Some
examples stimuli included in the act are tax credits, increase in government
bonds and incentives for energy efficiency. The tax credits came in a variety
of ways. People could get tax credits if they were unemployed, have health
insurance, purchased a house before April 30, 2010 or bought a new vehicle in
2009. These tax credits helped people who might have been struggling from the
Great Recession and also help increase consumption.
The Short Run
and Long Run effects of this policy are completely different. In the short run,
this policy would help the economy expand. People will feel that they have more
money to be able to spend since they will be getting tax credits. Since people
feel that they have more money to spend they will consume more. A change in
consumption would increase the aggregated demand. The SRAS will also increase
to compensate for the increase in the aggregate demand since there was
imbalance. The long run effects are different. When the prices of goods and
services rise, employers begin to ask for higher wages since their standard of
living decreases and it now costs more money to buy the same things that you
might have bought before. With all the government stimulus the government will
lose money and if not careful the government debt will increase.
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