The American Recovery and Reinvestment Act of 2009 Impact

Emily Comer
Blog Post #2
26 April 2016

The American Recovery and Reinvestment Act of 2009 was created during the Great Recession, which lasted from 2007 to 2009. The Great Recession, which was periods of falling real income and rising unemployment, was disastrous to the economy of the Unites States. The intention of the American Recovery and Reinvestment Act of 2009 was to increase the number of jobs in the economy and reduce inflation in order to correct the negative effects of the Great Recession. In order to do this, the Act created provisions that would assist individuals and businesses.
The Act enacted different types of stimuli in order to achieve their goal of bettering the economy. There were many provisions, some for individuals and some for businesses, included. Some examples of these stimuli for individuals are increased education benefits to help pay for higher education, increased earned income tax credit, addition child tax credit, COBRA health insurance, homebuyer credit that allowed individuals to be eligible for up to $8,000 in credit, and money back for new vehicles. Examples of these stimuli for businesses are adding veterans and some youth to the work opportunity tax credit, adding net operating loss carry back, and gaining new methods of financing with municipal bond programs. The addition of these policies theoretically should increase economic growth because businesses and individuals are able to better afford the benefits that they lost when the recession hit. Also, the stimuli theoretically would increase the amount of jobs in the economy because the fiscal policy would decrease unemployment and inflation.This will affect GDP because the policies increase credit for consumption and allow more individuals to have the ability to purchase. Since consumption has an impact on GDP, the GDP changes with the consumption factor. Also, the policies increase credit for homeowners, as mentioned above, which would impact the investment factor of GDP.
Since the policies are lowing price (P), according to the Wealth Effect and the Interest-Rate Effect, consumption will increase because people are able to feel richer and interest rates are lower. By increasing consumption, we can determine that aggregate demand will also increase in the short run. Since there is a recession occurring in the economy, we can also determine that there was a change in net exports (NX), which causes a shift in the aggregate demand curve. Also, it is likely that the policies in the American Recovery and Reinvestment Act of 2009 will increase the production of goods, which, in turn, affects the short run aggregate supply curve, but has no affect on the long run aggregate supply curve because price is not a factor. Because one of these policies increases the amount of people able to pay for higher education, a determinant of YN, has been affected, causing a shift in the long run aggregate supply curve. Also, in the long run, it is likely that these policies will increase government debt due to the increase in government spending. 

The American Recovery and Reinvestment Act of 2009: Information Center. (n.d.). Retrieved April 26, 2016, from https://www.irs.gov/uac/The-American-Recovery-and-Reinvestment-Act-of-2009:-Information-Center