The theory was that by giving consumers tax rebates, aggregate demand could be increased. This in turn would, along with the corporate tax cuts, give firms more confidence to increase their own spending. When the bill was being drafted, the economy was not yet in a state of total devastation, but there were signs of a pending recession. By drafting a bill that would increase aggregate demand, it was hoped by that business cycle could be forestalled or reversed. The government did not view recession as inevitable at the time. Rather, they felt that with sufficient increase in aggregate demand, the recession could be averted. As we have seen, the recessionary conditions at the outset of 2008 were merely the tip of the iceberg and the stimulus package was therefore woefully inadequate. The hope, though, was that the multiplier effect would take hold. If consumers spent more, companies would be more profitable. If companies were more profitable, they would invest more, creating more jobs. With more jobs, consumers would spend even more. In this way, the government hoped...
However, by the time the checks were issued, fuel prices were at their highest, consumer confidence was diminishing and most leading indicators pointed to the situation getting worse before it got better. As a result, the multiplier effect did not take hold. Ultimately, the multiplier effect only works if consumers and businesses make a conscious decision to spend. In times of diminished confidence, such decisions do not occur as much. Thus, the multiplier effect is not strong enough during times of low confidence. Certainly, it is not strong enough to reverse the business cycle, which was the law's overall intent.
Fiscal policy is defined as a government spending policy that influences macroeconomic conditions (Investopedia, 2009). The business side of the Stimulus Act is essentially a tax policy in disguise, because the net effect of the stimulus is a reduction in taxes paid. However, the tax rate is not specifically addressed. On the individual side, the stimulus is strictly microeconomic in nature and is not policy related. It is essentially a
The intention of the Act was to stimulate consumer spending. It focused on lower and middle income Americans, who might be more apt to spend rather than invest or save their tax refund. In other words, a wealthier individual might not hesitate to make a large purchase at any time, regardless of tax policy. But a lower or middle class individual who had been putting off necessary repairs, payments, or
They may feel and actually be 'out of the loop' of office politics because they lack a physical presence in front of their colleagues and superiors. As Woody Allen once observed, sometimes the most important thing in life is just showing up. Additionally, not all telecommuting workers are conscientious about doing their work. Without the supervision of a living, breathing manager they may use the extra freedom to slack in
Economics: The State of the U.S. Economy Cousin Edgar, a global investor, is seeking to capitalize on the thriving gasoline industry and the rising world demand for oil by purchasing several gas stations in the U.S. market. Inspiring his interest is the high price of gasoline, which he reckons will rise even higher in the near future, thanks to the urbanization and industrialization currently being witnessed in the developing economies of
Stimulus Bill Political Communication Political Communication during the Stimulus Bill Debate In times of economic uncertainty and national emergency, the government has the capacity to make decisions that it believes will aid the country in its time of need. Such a time of need occurred in 2009 when the country continued to face an existence of dire economic circumstances involving national cash-flow and jobs. In order to set economic recovery into motion,
The private sector tends to be against public sector funding, since it represents a basic redistribution of wealth from the ground up. Private sector economics has always held that the trickle-down economic models work best, where businesses and the very rich are given tax cuts and stimulus that is supposed to trickle down to the workers and the economy through renewed monetary business incentives. However, this form of economics,
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