The American Recovery and Reinvestment Act of 2009

The Great Recession of 2009 was a devastating time for the US economy. This overall decline in the country's output and production led to the worsening of many economic indicators such as: an increase in the unemployment rate, the decline of the country's GDP, and the rampant inflation of prices. As a result of the Great Recession of 2009 in the US, the US government passed an act called The American Recovery and Reinvestment act of 2009.

The intent of the expansionary policy was to stimulate the economy and get the economy back on its feet by promoting consumption and providing support for those that were affected. Because recessions are characterized by periods of falling real incomes and rising unemployment, many of the policies implemented attempted to increase take-home pay for those and create more jobs. For instance, the Making Work Pay Tax Credit ensured more take home pay for many Americans. Due to the increase in income that resulted from this tax credit, consumption likely increased. This consumption increase will in turn lead to a positive shift in the aggregate demand curve.

In terms of long term aggregate supply, one of the main factors of its fluctuation is the state of the labor market. Due to the increase in the unemployment rate--and consequently the decrease in the labor market--the long run aggregate supply curve will experience a downward shift. The education benefits that were implemented as a part of The American Recovery and Reinvestment Act of 2009 made it easier for families to pay for their children to attend a higher education institution. This would likely cause an increase in the amount of kids that go to college and would therefore increase the labor force in the long run.

The final economic trend affected by a recession is short run aggregate supply. The most likely explanation for the upward shift in short run aggregate supply in a recession is the misperceptions theory. This theory states that the changes in overall prices can mislead suppliers about what is happening in the markets in which they sell their products. When suppliers see their prices fall due to a lack of demand, they likely mistake this for their company performing poorly, when, in reality, the entire industry is doing poorly due to the onset of a recession.

Overall, recessions take a toll on households and firms alike and lead to the downturn of several economic indicators. Luckily, government intervention can serve to help turn things around for the better by stimulating the economy and promoting consumption.