Question

Discuss the stimulus package enacted in 2009. How did it differ from previous efforts to revive the economy during the Great Recession? Was it helpful or harmful?

Answer 1

A stimulus package is a package of economic measures put together by a government to stimulate a floundering economy. The objective of a stimulus package is to reinvigorate the economy and prevent or reverse a recession by boosting employment and spending.The theory behind the usefulness of a stimulus package is rooted in Keynesian economics, which argues that the impact of a recession can be lessened with increased government spending.

Congress approved the American Recovery and Reinvestment Act in February 2009. ... The economic stimulus package ended the Great Recession by spurring consumer spending. Most importantly, it instilled the confidence needed to boost economic growth. It also aimed to restore trust in the financial services industry

In a 2009 report, the CBO projected ARRA would stimulate gross domestic productby 1.4 percent to 3.8 percent for the fourth quarter in 2009. The stimulus was successful in 2009 GDP. The economy grew 1.5 percent in the third quarter and 4.5 percent in the fourth quarter. That's a big improvement over the first quarter's 4.4 percent drop and the second quarter's 0.6 percent decline.

In 2009, the CBO predicted that ARRA would increase employment by 7 million full-time jobs by the end of 2012. In 2015, it estimated the stimulus created between 2 million and 10.9 million jobs. Most of the increase occurred by 2011.

Most of the success was due to the Stimulus Package. By March 2009, expansive monetary policy had done all it could. It was evident more fiscal policy was needed. No doubt, the economic stimulus package inspired the confidence needed to turn the economy around.

Once in office, Obama realized he needed to increase the fiscal stimulus from the $190 billion plan he proposed in his campaign. Some components of his campaign plan, such as enacting a foreclosure moratorium, had already been implemented by Fannie Mae. Others, such as eliminating taxes on seniors making up to $50,000, were still part of Obama's economic agenda elsewhere.

Obama's biggest challenge was to create enough of a stimulus to soften the recession, but not big enough to raise further doubts about the ballooning U.S. debt. Unfortunately, the plan was blamed for doing both. It failed to initially reduce unemployment below 9 percent and added to the debt. Even so, the stimulus plan was not condemned as much as health care reform, Medicare, and Medicaid for the debt.