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US stimulus package policy: path to prosperity or road to ruin - Essay Example

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Summary
The United States is facing one of the steepest declines in economic activity,and one of the most dramatic shortfalls in budgetary considerations since the Great Depression of the 1930s.Efforts to revive the economic slowdown range from the philosophy to the conservative viewpoint that argues for a correction based solely on market economics…
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US stimulus package policy: path to prosperity or road to ruin
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US stimulus package policy: path to prosperity or road to ruin

Download file to see previous pages... The United States is facing one of the steepest declines in economic activity, and one of the most dramatic shortfalls in budgetary considerations since the Great Depression of the 1930s.Efforts to revive the economic slowdown range from the philosophy that contends government spending is the most efficient way to stimulate the economy, to the conservative viewpoint that argues for a correction based solely on market economics. Spending our way out of the recession is made more problematic by the huge US debt incurred from eight years of Republican spending on two wars and a massive tax cut that failed to sustain any economic improvement. The purpose of this paper is to examine the US stimulus package policy and evaluate its impact on the US dollar, inflation, unemployment, and the myriad aspects of the economy that affect the financial well being and the economic stability of the American public.The two problems that have collided to exaggerate the current crisis are the record level of national debt and the declining rate of Gross Domestic Product (GDP) growth. Currently the national debt is approximately $12 trillion dollars, which translates to nearly 75 percent of the GDP (Office of Management and Budget, 2005, p.119). This level has not been seen since the post World War II era, as the debt spiked due to wartime spending. The debt reached a modern low in 1982 at 35 percent of GDP before beginning another sharp increase under Reagan, Bush Sr., and George Bush Jr. (Office of Management and Budget, 2005, p.118-119). The current rising debt has also coincided with a recessive economy.
The National Bureau of Economic Research (NBER), the federal agency responsible for determining the official dates of economic expansion and contraction, define a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP" (Dr. Econ: How many recessions, 2008). Negative growth in the fourth quarter of 2007 was followed by two quarters that failed to exceed a 3 percent growth rate. The last quarter of 2008 and the first quarter of 2009 experienced a significant negative rate of growth that exceeded 6 percent (Bureau of Economic Analysis 1, 2009, p.1). Rising unemployment, a decline in real income, and a decline in consumer spending are also indicators of the depth of the recession (Bureau of Economic Analysis 2, 2009; Dr. Econ: How many recessions, 2008). Clearly the US is in a deep economic recession, while facing one of the highest levels of national debt in modern history.
The Stimulus Policy Defined
In the current crisis, the debate centers on the level of spending that the government should undertake as a means to stimulate the economy. During an economic recession people have the intuition to save their money in the event of future job loss and loss of income. However, this removes money from the economy and makes the situation worse. In addition, letting the market adjust, or rely on it to create jobs, may not be realistic. John Maynard Keynes argued that "the unregulated markets promoted in the laissez-faire approach to economics failed to secure employment in the absence of some government regulation" (cited in Goodman and Cohen, 2004, p.146). However, Keynes's General Theory suggests that substantial spending in the public sector can stimulate the economy during periods of low aggregate demand (Keynes, 2006, p.xlii). Job security, tax cuts, contracts, and a declining unemployment rate will reduce people's propensity for saving and further stimulate spending. These factors are the motivation and rationalization behind the government stimulus package.
One of the key features of the economic stimulus package are the tax cuts for the middle class. Supply side advocates have squared off against demand siders in an effort to determine where tax cuts reap the greatest benefit. Supply siders believe that tax cuts for the investment class (the ...Download file to see next pagesRead More
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