Blog #2 American Recovery and Reinvestment Act

The Great Recession in 2009 was the largest recession since the Great Depression. During this time, the country was going through a financial crisis that resulted in trillions of dollars in debt and high unemployment. The country was in need of an economic reform to boost the economy. In 2009 President Obama signed a policy that would help to jumpstart the economy and promote economic recovery and growth. The goal of the Recovery at was to keep and create jobs, provide investments to increase economic efficiency, invest in long-term economic benefits, and to stabilize State and local government budgets.

An example of the most common stimuli included tax credits for individuals and businesses. The tax credits for individuals included education benefits, child tax credits, encouraged people to purchase homes and vehicles, provided unemployment benefits, and provided health coverage tax credit. Tax credits for businesses included work opportunity credits, energy efficiency and renewable energy incentives, and net operating loss carryback. These benefits and incentives for individuals were intended to help boost spending and consumption, while the incentives for businesses were intended to help them get back on their feet and increase production.

Theoretically, these policies will increase short run aggregate supply by increasing production. In addition, consumption will increase because people will have more purchasing power because they won’t be putting as much money into taxes, therefore aggregate demand will increase. Also the many benefits and incentives of the Recovery act were intended to increase purchasing, which would also increase aggregate demand. The effect on aggregate supply in the long run is different. If the demand increases because consumption increases, the prices will also increase. Typically as prices increase, the lower purchasing power of the consumers. It will cost more to the consumers to buy the same items so they will not want to continue to purchase as much as they did before. However, with the government creating tax cuts to benefit the people and the people are no longer purchasing as much, the government debt will increase. The American Recovery and Reinvestment Act increase aggregate supply and demand in the short run, but in the long run effects of this policy include an increase in government debt.

Sources

https://www.irs.gov/uac/The-American-Recovery-and-Reinvestment-Act-of-2009:-Information-Center

https://www.whitehouse.gov/sites/default/files/docs/erp_2014_chapter_3.pdf