Discuss some actions taken by the federal government and
whether the recession would have been longer and the unemployment rate higher
if the government had not acted by passing the stimulus package?
In order to get the US out of the 2007 to 2009 recession,
newly appointed President Obama had to do something to get the country back on
its feet. This was accomplished by passing a $700 billion bank bailout
known as the Emergency Economic Stabilization Act of 2008 and passed a $787
billion fiscal stimulus package known as the American Recovery and Reinvestment
Act of 2009. The stimulus included direct spending in infrastructure,
education, health, energy, federal tax incentives, and expansion of
unemployment benefits and other social welfare provisions (Amacher & Pate,
2012). The stimulus allowed the country to get back on enough solid
ground to start repairing what had to the economy over the past two
years. I believe that the recession would have lasted longer and there
could have been a possibility that it could have turned into a
depression. This would surely make the unemployment rate to continue to
increase. With less money being circulated, there is less opportunity to
improve the economy. Without the increase in the economy, the rate of
unemployment is going to continue to decline.
If left alone, do you believe the economy would have
corrected itself as suggested by Classical economic theory? Explain.
If nothing was done by the government to stop the recession,
it time it would right itself once. Classical economists believed that
equilibrium would be reached and maintained at a level consistent with full
employment by the actions of three self-regulating markets (Amacher & Pate,
2012). This theory says that any economy is able to survive without the
help of a government. The most important thing that helps economies
survive is having a balance of supply and demand. When there is a higher
amount of supply, which is when the economy will begin to slip towards a
recession. When that happens, a way to get that balance back is to make
it possible for consumers to buy up the large amounts of supply.
Discuss the effect these policies had on increasing the size
of the budget deficits and the national debt.
A deficit is the amount by which the federal government’s
expenditures exceed its revenues in a given year. The national debt is
the cumulative total of all past budget deficits minus all past surpluses
(Amacher & Pate, 2012). The deficit is forever staying the same or
getting worse. The programs that are in play throughout the country are
constantly putting a strain on the economy but there is very little possible to
limit the programs as too many people rely on them. The national debt is
a number that includes everything that country has borrowed in order to
maintain the deficit and to maintain this country. The money for the
national debt is money that we borrow from other lenders, many of them foreign.
The effect that these policies have on the deficits and the national debt is it
constantly increases the amount of money that it takes to pay it off.
Reference: Amacher, R., Pate, J., (2012). Principles of
Macroeconomics. San Diego, California: Bridgepoint Education, Inc.
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Some of the actions taken by the government included several stimulus packages. These economic packages were designed to stimulate the economy, as well as put Americans back to work. The assumption was, if Americans had more disposable income, then they would be inclined to spend. The increase in spending would lead to demands of goods and services, which will reduce the unemployment rate. Along with this approach, the government decided to spend more money on infrastructure improvements such as roads, bridges, and certain buildings. This approach wasn’t well received by the Republican Party due to its increase in spending. If there wasn’t any stimulus package, then the economy would have been much worse.
At first, the stimulus packages did not achieve its goal.
Many people took the money and placed in savings accounts. The object of the
money was to be spent, not saved. President Obama addressed this issue to the
nation during the one of the State of the Union speeches. He urged people to
spend the free money on whatever they want. After the speech, the economy had
moderate improvements. The tax breaks were designed to provide consumers with
financial relief, which in turn would enable them to spend more money. In
terms of the deficit, there will definitely be an increase in both. The
deficit increase was the center of many debates with the government. They did
not agree with the concept of going into debt just to get the economy
started. However, the Return on Investment should be part of the discussion,
which in this case would be an improved infrastructure.
Travis
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Discussion 2
Between 2007 and 2011 the federal budget deficit grew from
$160.7 billion to $1,299.6 billion, and the national debt grew from $8.9
trillion to $14.8 trillion. (Figure 10.1: The ratio of debt to GDP,
1977-2011.)
In your post, differentiate the budget deficit from the
national debt. How do you think the increases in the budget deficits and
the national debt will affect the economy in the future?
"A deficit is the amount by which the federal government's expenditures exceed its revenues in a given year, national debt is the cumulative total of all past budget deficits minus all past surpluses. It is the amount owed to lenders by the federal government"
(Amacher & Pate, 2012). No matter what we will always have them, it doesn't
matter how hard we try it will always be
there. The current national debt actually understates the financial obligations of the U.S. government because of other obligations besides debt repayment that could prove costly in the nearfuture.
Because bank failures have been higher than expected throughout the 2000's, these guarantees have been a serious drain on the treasury".
(Amacher & Pate, 2012). There are no guarantees when it comes to the
economy and the future.
Reference:
Amacher, R., Pate, J., (2012). Principles of Macroeconomics.
San Diego, California: Bridgepoint Education, Inc.
This is a comment from the professor...please respond
In reference to your comment: “For
instance, in 2007-2008 recessions, the Federal Reserve used deficits and
increased national debt in order to stimulate the economic activity.”
Another occurrence worthy of mention was the stock
market downfall during the same period. Stockholders have the advantage of
limited liability if the corporation were to “go south”. However, we should
still perform specific and comprehensive research when choosing stocks for
investment. A classic example is the losses suffered by ENRON
shareholders when the price quickly plummeted to almost nothing in a quick
fashion.
Class: Provide an example of another company that suffered
from any similar time period.
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