Bridget Boenke
Blog #2 Post
April 25, 2016
What was the intent of
the expansionary policy?
After the
Great Recession, many people were left without jobs. Many no longer had health
insurance and could not pay their bills. This led to an increase in personal
debt. Many Americans felt like they were stuck in a rut and couldn’t get out.
The American Recovery and Reinvestment Act of 2009 was passed to help everyone
get back on their feet again. It includes stimuli to promote economic growth. Businesses
also suffered during this time, having to lay off workers or even close their
doors. The Great Recession left many businesses unable to continue selling
their goods and services. This act also encourages businesses to begin making
advancements towards prosperity.
Discuss examples of
stimuli included in the act.
Tax credits
are the most common type of stimulus in this act. There are income tax credits,
children tax credits, homebuyer credit, work opportunity credit, etc. These tax
credits gave people an incentive to work, raise children, buy new homes, and
save money for college. It gave businesses the desire to hire new workers,
build environmentally friendly buildings, and offer health insurance. Incentives
are given for making homes more energy efficient encouraging more people to
purchase the goods, thus stimulating the economy. Health coverage is another
part of this act. Since many people get health insurance through their
employer, those that lost their jobs also lost their health insurance. This act
encourages people to get new health insurance for a discounted rate. Businesses
were able to get back some of the money they had paid in taxes over the last
five years. This might have been really helpful to the small businesses that
needed some more money to get operations up and running again.
Theoretically, what
impact do such policies have on the economy?
In the short-run,
this policy should expand the economy. People feel that they have more money to
spend, since they know they will be paying less in taxes. When people feel that
they have more money to spend, aggregate demand increases. Consumption and
productivity will increase while unemployment decreases. For example, this act
offers money back on newly purchased vehicles. They are able to deduct the
purchase from their state and local taxes, which could incentivize purchasing a
new car. The demand for new cars should quickly increase. The SRAS will increase
to compensate for these changes in aggregate demand. Those selling the cars
will sell them for a higher price, since people are willing to pay more money
to get it. However the long-run effects are different. When prices of goods and
services rise, the workers begin to ask for higher wages. It now costs more
money to buy the same things you have been buying. With all these tax credits
and reductions, the government loses money to spend itself. So, the
government’s debt will grow.
“The American
Recovery and Reinvestment Act of 2009: Information Center.” Internal Revenue Service. 22 Oct. 2015.
Web. 25 Apr. 2016.
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