--%>

The federal fiscal stimulus

Question: Was the stimulus package passed in 2009 as success?  In answering this question the focus should be the articles on the syllabus, but you should also include opinions of other commentators.   Your answer should also describe why coming to a clear conclusion on this issue is difficult.

Answer:

To start with, the federal fiscal stimulus in 2009 was not as big as it could have been, and as it seems to naked eyes. The federal stimulus was accompanied by a spending cut by the state and local bodies. This, in effect, led to a very small resultant increase in the federal spending.

To discuss the performance of the economy after the stimulus, we have the data to show how the economy is performing. So the FOMC report concludes that there has been an increase in unemployment, a fall in household consumption expenditure, housing sector is still to recover, and the nonresidential structure sector is also in a bad shape. To add to the problems, inflation rate is high due to the high prices of the essential commodities. More so importantly, the tax cuts which were supposed to induce the households to increase their spending, and hence increase the aggregate demand, have mostly failed in their mission. So, overall we may that the economy is still in a bad shape and it may seem easy to assume that the fiscal stimulus has failed to revive the economy.

However, there is something to ponder about here. What would have been the state of the economy had the fiscal stimulus not been provided? Would it have been the same, better or worse? It is true that the tax cuts of 2008 induced only 25% of the households to increase their consumption, and the ARRA stimulus tax cuts were associated with only 13% of households increasing their consumption, nevertheless, there was an increase in the consumption and hence aggregate demand. Households are supposed to smoothen out their consumption rather than acting abruptly to a tax cut. But the point under consideration is that had these tax cuts not taken place, wouldn't the households' and overall economic expenditure had been even lower? The answer is yes. There might have been a downward spiral of declining aggregate demand and spending. The stimulus at least brought some kind of relief.

Therefore, three things come to fore. First, the full gains of the stimulus were not realized due to a simultaneous cut back by state governments. Second, the gains from the stimulus are not as big as expected and the economy is still in a state of uncertainty. Third, the situation could have been even worse in the case of absence of stimulus, however, it this assertion cannot be tested easily.

   Related Questions in Business Economics

  • Q : Illustration of Absolute and Relative

    The price of KnickKnacks is $1 and the price of WigWags has increased with $2 to $3. Therefore:  (w) absolute price of KnickKnacks has decreased and the relative price of WigWags has increased. (x) relative and absolute prices of KnickKnacks have

  • Q : Demand Q X= 600- 6PX + 20I +0.4PY c.

    Q X= 600- 6PX + 20I +0.4PY c. Suppose PX increases by 10%, by what percentage would sales decrease? Explain how this price increase affect total revenues from good X.

  • Q : Barter - Efficiency and the Gains from

    Relative to other systems, economies in that people exchange goods or resources directly along with other people for other goods or resources without using money like a usual denominator rely relatively heavily upon: (i) barter. (ii) specialization. (

  • Q : Understates the economic cost of a

    Computing the cost of college education like the cost of books, tuition and materials, room as well as board, and spending money: (i) overstates the economic cost of a college education. (ii) accurately measures the economic cost of a college educatio

  • Q : Perfect competition and efficiency

    Which of the given describes a condition in which a good or service is produced at the lowest probable cost: w) productive efficiency. x) allocative efficiency. y) marginal efficiency. z) profit maximization Please

  • Q : Elucidate Reliance on technology and

    Elucidate Reliance on technology and capital goods of the market system?

  • Q : Illustrate Other Things Equal revisited

    Illustrate “Other Things Equal” Revisited in Supply and Demand, and Equilibrium?

  • Q : Competitive market economy will make

    Briefly explain how the competitive market economy will make the needed adjustments to reestablish an efficient allocation of society’s scarce resources?

  • Q : How can we compute operating leverage

    How can we compute operating leverage?

  • Q : Illustrate Rational Behaviour of

    Illustrate Rational Behaviour of Economic Perspective?