The American Recovery and Reinvestment Act of 2009

Drew Mikula

Econ 122

Dr. Kassens

4/26/16

            The Great Recession was a time period that was between the years of 2007 to about the middle of 2009.  During this time period the economy started to decline.  People were spending very little money during this time period and some business had to shut down because they were not making enough money to pay their employees and they also could not pay for the building costs.  The government also had to layoff workers due to the lack of money.  GDP started to drop because the market value of final goods and services was dropping.  One of the main reasons that the Great Recession started was because the housing market dropped off by a lot.  People did not want to sell their houses during this time period because the value of houses was at a low.  Unemployment rates were also rising quickly during the Great Recession, which caused more and more people to consume less goods and services.  As the economy kept dropping the government had to step in to stop the recession with an expansionary policy.

            In 2009 the government passed the American Recovery and Reinvestment Act.  The reason for the act was to help stimulate the economy to get it out of the recession and back to where it was before 2007.  Some the stimuli included increasing earned income tax credit, making more families qualify for addition child tax credit, giving education benefits to help students pay for schooling, and giving out more unemployment benefits that were tax free (“The American Recovery”, 2016).  All of the stimuli included in the American Recovery and Reinvestment Act of 2009 brought money into the hand of the people so they would spend more money to help the economy grow.  There were also some stimuli in the American Recovery and Reinvestment Act of 2009 that helped business grow.  For example the government would give business more tax rewards if their buildings were energy efficient.  This helped the business hire more people, which then gave people more money to spend.

            Before the American Recover and Reinvestment Act of 2009 was made the economy was declining.  This caused aggregate demand to fall because less people were demanding goods and services.  When aggregate demand fell prices also dropped which also caused a rise in unemployment.  Short term the price level fell, as did the quantity of output.  Since there was not increase or decrease in technology the long run aggregate supply did not change.  Short run aggregate supply would also stay the same because the government stepped in to fix the market.  The government decreased taxes and also gave more tax money back.  This caused consumption to increase, which then causes aggregate demand to return to where is was before the recession started.  The market will fix its self over time but since the government stepped in they helped expedite the process.

References

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