American Recovery and Reinvestment Act
In the wake of the 2008 market crash and the ensuing recession, the U.S. government developed a plan to shore up the economy in the face of dwindling economic activity. That plan combined federal stimulus with tax breaks to help fill the gap created by cuts in consumer spending. The steps taken by the government were meant to create a short-term solution -- but the controversy surrounding the steps was similar to that of a doctor treating only the symptoms of a disease by placing a temporary bandage over an obviously infected wound: it did nothing to address the symptoms directly. Part of that reason was that those in charge of addressing the issue were not situated to address the actual causes of the problem. This paper will examine the steps taken by the government via the American Recovery and Reinvestment Act of 2009 and how it affected GDP and other aspects of the economy.
The Congressional Budget Office (CBO) expected the American Recovery and Reinvestment Act (ARRA) of 2009 to have a positive effect on both employment in the U.S. and GDP. The CBO anticipated a growth in GDP as a result of the stimulus in the realm of 1.4% to 3.8% by year's end, with a tapering effect in growth over the next 5 years (Young, Sobel, 2013). The CBO also expected economic output to increase and unemployment numbers to drop as a result of ARRA -- at least in the short-term. The longer-term side-ffect of the stimulus would be that by 2020, a net decrease of up to 0.3% to baseline would be the result (Young, Sobel, 2013). Spending allocations approved by Congress, moreover, set aside $70 billion which was to be used to block more than 20 million American taxpayers from avoiding the alternative minimum tax the year of ARRA's implementation.
However, because the allocation was not assessed according to inflation, the funds did not perform the way they were originally intended,...
Federal Reserve Policies 2000- The first decade of the 21st century saw the U.S. economy on a peripatetic through tumultuous events, euphoric highs, and abysmal lows. The ten-year window highlighted three periods: 2000-2004, 2004-2007, and 2007-2010 in which the Federal Reserve actively utilized their policy levers to achieve their dual policy mandate of full employment and low inflation. The Fed's policy bag includes: the Fed funds rate, open market operations, discount
It is also worth noting that the Fed must understand how the relationship between its actions and the outcomes changes under different circumstances. For example, open market transactions put more money into the economy; they do not imply that spending will increase. Thus, more money in the economy will not necessarily lead to more growth, lower unemployment or higher inflation, even though the typical relationship is that they will. The
Rather than propping up "bad blood" and allowing the "illusion" of wealth to continue to be fostered, the Federal Reserve should allow the market to flush out the "bad blood" and operate the way it is intended. Conclusion In conclusion, the good that the Federal Reserve does is to monitor economic policy, encourage maximum employment and long-term stability. The way it does so, however, especially in times of crisis such as
Federal Reserve Operations in the United States Functions of the Federal System in Control of Money Supply The discount rate, according to the federal system, is the interest rate, which the Federal Reserve imposes on the loans it gives to Federal Banks that are troubled and need financial support. Processing of lending to the banks is done through the 'discount window', which in most cases is controlled by the Reserve Banks. Factors influencing
The Federal reserve realized the big negative impact of MBS and announced a 600 billion program in November 2008 to purchase these securities and this helped to bring back some liquidity into the market. In March 2009, it added another $750 billion to bring the total to $1.25 trillion. The Fed has the power to create or print more money to increase money supply in the market and this is exactly
" (Structure of the Federal Reserve System) The 12 Federal Reserve Banks extend banking service to the depository institutions and also to the federal government. To the financial institutions it takes the responsibility of maintaining reserve and clearing out accounts and entails various payment services incorporating checks, electronically transferring funds and circulating and receiving coins and currency notes. As the banker of the Federal Government they function as fiscal agents. They
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