Expansionary Policy: The American Recovery and Reinvestment Act of 2009

America and most of the other countries experienced a global shrinkage in their economies, which has become known as The Great Recession. This lasted from about 2007 to 2009 and is considered the biggest recession since The Great Depression of the 1930’s When talking about an economy “shrinking,” it means that RGDP and productivity is decreasing. GDP is determined by consumption, investment, government spending, and net exports. A decrease in any of these values and lowers GDP. As GDP continues to lower people begin to react and stop spending their own money making it shrink at a faster rate. Governments enact expansionary policies in order to slow down and hopefully reverse the loss of GDP. To help slow down and reverse the recession the American Recovery and Reinvestment Act of 2009 was passed. This contained expansionary policy in order to help household and businesses recover from the past two years. Similar to the Great Deal of the 1930s its intent was to help create jobs for people who had lost them and give support services and programs to those struggling.

                 The policies enacted in order to help individuals were a lot of chances to get taxes breaks or exemptions. These included additional child tax credit, educational benefits, Home energy efficiency and renewable energy incentives, Homebuyer Credit, Money Back for New Vehicles, and an increase in unemployment benefits. The recession cause individuals to spend less of their own money and save it in case the recession continues for longer. The policies for businesses were similar to the household policies. There was work opportunity tax credit, Energy Efficiency and Renewable Energy Incentives, and Net Operating Loss Carryback. These helped smaller businesses that lost a lot of productivity during the recession and could help them gain it back by getting refunds from up to five years ago.

This reduction in consumption will result in lower aggregate demand, leading to lower prices for goods, lower productivity, and a higher unemployment rate in the short term. All of these were seen as outcomes of the Great Recession. The expansionary policy of adding tax breaks for households gave more money back to households therefore increasing consumption and aggregate demand in the long run. This relationship between consumption and prices is known as the wealth effect, because when people have more money they feel wealthier and are more willing to buy things.

These policies have done their job in the short term. It was estimated that the American Recovery and Reinvestment Act of 2009 cost around $830 billion which was another setback for GDP initially, but since then the United States Economy has been able to recover to a point where it almost the same as before the Great Recession. The recovery of such a large economy also helped the rest of the world’s economies to regain productivity. With the short run lower in aggregate demand the expansionary policies of the ARRA was able to return aggregate demand to its former level, therefor returning productivity to its “natural” state.

The American Recovery and Reinvestment Act of 2009: Information Center. 2016. IRS.

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

The American Recovery and Reinvestment Act of 2009

Jose Alvarado

April, 26th/2016

Dr. Kassens

The American Recovery and Reinvestment Act of 2009

The intent of the expansionary policy was mainly to bring back balance into the Economy. The American Recovery and Reinvestment Act of 2009 tried to help the unemployment people, people with kids, veterans and homebuyers.

For the unemployment people, the Act would give them the “Up to $2,400 in Unemployment 

Benefits Tax Free in 2009” benefit. Also “workers who lost their jobs between Sept. 1, 2008, and May 31, 2010, may qualify for reduced COBRA health insurance premiums for up to 15 months.” This act helped to give the unemployment people a chance to keep spending. It would be better, for the insurances, for unemployment people to pay a little less than just quitting their coverage.

For the families with kids, they received “Education benefits. The American Opportunity Tax Credit and enhanced benefits for 529 college savings plans help families and students find ways to pay higher education expenses.” Also they would get the “Additional child tax credit.” Education is essential for the economy of a nation. By giving the citizens a chance to help themselves with giving them kids a better education, in the short-term it would have been expensive, but in the long-term when those kids grow up, it will definitely pay off. Probably affecting the Long Run Aggregate Supply curve.  

For the veterans, they got the “$250 for Social Security Recipients, Veterans and Railroad Retirees” benefit. Some veterans had their savings in banks, and when the depression hit the U.S.A they probably lost their life savings, and they probably did not have the chance to make up that money because they don’t have the skills they used to have.

Lastly but not least, the Homeowners benefit. “Homebuyers who purchased by April 30, 2010, and settled by Sept. 30, 2010, may be eligible for a credit of up to $8,000.” At the time, the real state was booming, and so people were buying houses but most of them bought the houses by acquiring debts from banks. And so when the depression hit, most people stopped paying the mortgages because the house value was not as high as when it was first acquired. Banks began taking the houses from the homeowners, and not been able to sell them was one of the causes of their bankruptcies. This benefit would have help people on the short-run because the homeowners, who still had the debt, wouldn’t want to pay from the fact that the price of the house is lower than the debt they are paying. Affecting the Short-run aggregate supply curve.

The American Recovery and Reinvestment Act of 2009 would have not only benefit the individuals but businesses as a whole. The Act of 2009 would have given the “Work Opportunity Tax Credit. This expanded credit added returning veterans and ‘disconnected youth’ to the list of new hires that businesses may claim.” Also “small businesses can offset losses by getting refunds on taxes paid up to five years ago.”

The impact such policies have on the economy that it would have increased production and decrease price levels, but later when production was high enough then the price levels could increase, creating a balance in the economy. Basically creating a balance in the aggregate-demand curve.

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

Recovering from the Recession

In 2008, America started to experience what would be the worst economic downfall since The Great Depression, which took place in the late 1920's through the 1930's. The crash began due to the real estate and housing market crash; people would take out loans to pay for houses they could not afford, and when mortgages came around, people abandoned the homes. Furthermore, when the banks came crawling for their money, the public could not pay back the loans, let alone with the hefty interest rates. So for a long time, the economy of the United States experienced a great economic lull that effected everyone. For some people it did not effect them much, for others, they went from rags to riches. In order to reestablish balance in the economy, United States policy makers knew that GDP needed to expand and grow. The level of cash flow through the economy needed to increase; this would put more money in the pockets of businesses and the general public itself. It was in these thoughts generated the roots to create legislation to aid the entire country. The American Recovery and Reinvestment Act of 2009 was implemented in February 2009 to increase and expand GDP, save and create jobs, and help out programs and institutions that were greatly effected by the Great Recession. According to economists, it is estimated that in between the next ten years (2009 to 2019) $831 billion to reinstate balance to the economic system.
The American Recovery and Reinvestment Act (also known as ARRA or the stimulus bill), spent most of its time, money, and energy in the areas of health, educations, and unemployment benefits. Of course other social welfare areas were, and currently still being, aided, but these occupations took some of the greatest hits due to the Recession. When money is short, priorities change; moreover, schooling and health come secondary to any source of income one can find. Ironically without the proper schooling and education, people can not receive the jobs that are able to provide for themselves and their families. If an employee is not healthy, then they can not go to work and perform to provide for themselves and their loved ones. The ARRA implemented stimuli packages that would help increase GDP; for example a couple of the packages are titled: "Health Coverage Tax Credit, which pays 72.5 percent of qualified health insurance, and more people are qualified" and "Money Back for New Vehicles, which allowed taxpayers who bought new cars or certain other new vehicles in 2009 to deduct their state and local taxes they paid" (IRS 1). These packages allowed the cash flow in the American economy to circulate more in quantity, rapidly, and more efficiently. Since 2009, the levels of unemployment have decreased dramatically due to the reforms of the ARRA, even after many economist doubted how effective it would be. Since the ARRA has been implemented, the AD curve has shifted outward, which is a result of the increase in GDP, making the point of equilibrium a more profitable and prosperous than before.

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

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

The American Recovery and Reinvestment act 2009

After any recession, like the Great Recession, the goal of policy makers is to expand GDP and stimulate economic growth. This is exactly what the goal of The American Recovery and Reinvestment act was aimed at. The Act includes several policies to stimulate economic growth. An example of this was the Homebuyers Credit. This is where if consumers would purchase a house by April 30, 2010 they would receive a credit of $8000. I believe policy makers were aiming to impact GDP growth. This impacts GDP growth in two ways. The first is that this credit may influence more people to buy homes. Therefor, increasing the investment section of GDP. I also believe that this stimulates the consumption component of GDP. This is because when people are receiving this $8000 they are more likely to spend more on other goods, which fall under consumption of GDP. Another example of this is "Money back for new vehicles." This states "Taxpayers who bought new cars and certain other new vehicles in 2009 can  deduct the state and local sales taxes they paid as well as other taxes and fees they paid in states with no sales tax." Basically what policy makers were attempting to do here is increase consumption spending and there for increasing GDP once again. 
As we discussed earlier these policies have a direct impact on GDP, but this is in two ways. The long term and the short term. If we examine the aggregate supply and demand curves. First off, these policies will give most likely give the people a higher amount of disposable income. For example the "Money back for new vehicles" is a tax cut, and we know that tax cuts allow people to take more than that would otherwise. This leads to higher consumption spending, as mentioned earlier, and higher consumption spending will result in an outward shifting aggregate demand curve. Because the AD curve shifts outward we will see a movement along the aggregate demand curve to meet this new demand and creating a new equilibrium point. Therefor over the short run we will notice an increase in GDP and an increase in prices. However, in the long run, this is not the case. Still examining the graph of aggregate supply and demand, we know that aggregate demand has a downward slope and short run aggregate supply has an upward slope. We also know the long run aggregate supply curve is vertical because it is determined by the economies stocks of labor, capital, natural resources, and the level of technology. This dictates to us that even though we will see increased GDP in the short run we will not see it in the long run. This also means that in the long run we will only see increases in prices or inflation.  The only way to see this increase in GDP is through a shift in the Long run aggregate supply curve. This is usually due to technological advances but can also be because of other things like increases or decreases in a population. Therefor, we can assume that the implementation of these policies most likely only impacted short run GDP rather than long run GDP.

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

The American Recovery and Reinvestment Act

The American Recovery and Reinvestment Act passed in 2009 was known as a stimulus package and a response to the Great Recession. Congress and the president intended this bill to create jobs and provide relief programs for those who were struggling because of the recession. One way the government intervened was by giving tax credits to individuals who fell below a certain socioeconomic level such as: Earned Income Tax Credit, Making Work Pay Tax Credit and Health Coverage Tax Credit. The act also provides tax credits for businesses such as the Work Opportunity Tax Credit; this credit provided an incentive for businesses to hire veterans as well as at risk youth in order to receive the tax break. By providing individuals and businesses with tax credits the government is allowing them to keep more money in their pockets. The government does this with the hopes that people will once again start to feel secure enough to start spending their money again; this allows for money from households to start circulating in the economy and hence allows the economy to grow again.

The model most often used by economists to explain short-run fluctuations in economic activity around the long run trend is the model of aggregate demand and supply. This model allows economists to analyze fluctuations in the economy as a whole. The aggregate demand curve shows the quantity of goods and services that consumers want to buy depending on the price level. There are multiple reasons why the aggregate demand curve might shift; for example, during the Great Recession households are likely to become more concerned about saving their money for retirement if they are not making as much. In order to save households must decrease consumption causing the aggregate demand to decrease (on a graph it would shift to the left). This is where we see the tax credits come into effect from the American Recovery and Reinvestment Act, any policy that changes how much people want to consume will put an upward pressure on our aggregate demand curve and the tax credits accomplish this by keeping more money in consumer’s pockets. The second part of the model of aggregate demand and supply is the aggregate supply curve; in the long run the aggregate supply curve is a vertical line (LRAS) while in the short run it is upward sloping (SRAS). Policies that increase real GDP increase the quantity of goods and services supplied which means a shift to the right, or increase, in the long run aggregate supply curve. When the government intervenes and implements policy that increases real GDP the quantity of goods and services supplied increases and shifts the long run aggregate supply curve to the right; increasing the curve. When policy lowers the quantity of goods and services supplied the aggregate supply curve decreases by shifting to the left. When it comes to the short run aggregate supply curve there are several items that may cause a shift in the curve. If there is a decrease in the quantity of available labor the aggregate supply curve shifts to the left; during the Great Recession it is certainly possible the amount of labor available decreased due to layoffs. 

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