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The attack had dire consequences on both aggregate demand (AD) and aggregate supply (AS) of goods and services. Closure of the stock market and travel advisories both within and outside the country cut business activities leading to a drop in the GDP. AD curve shifted to the right giving rise to prices that ultimately leads to expected future inflation. At this point, aggregate supply shifts to the left in the short run until GDP surpasses its long-term average.
The attack prompted the country to launch one of its greatest expenditure programs on September 20, 2001 after President Bush declared war on terror. Operations in Afghanistan would cost the treasury massive amounts in expenditure. According to Carter and Cox, 2011, the government spent an estimated $3.3 trillion in response to the threat. America invested extensively on the Department of Defense (DOD) and operations of the newly created homeland security department. The federal government channeled funds to the defense spending both in Afghanistan and homeland security surveillance including intelligence details (Makinen, 2011).
High expenditure by the DOD and homeland security initiated a debt crisis in the country. The amount of funds usable in driving stimulus programs in the country reduced with the increase of expenditure on security. High debt levels experienced in America because of increased expenditure after 9/11 were among the forces that prompted the 2008 crisis. Limited Medicare benefits caused a downgrading of the country’s debt.
Fiscal policy affected interest rates, government expenditure strategy and tax rates. The US government, therefore, used borrowing from the federal government to help restore the adversely affected airline sector. America used automatic in-built stabilizer to restore its economy after the incidence. Corporations received tax relief that enabled them to acquire funds to help rebuild the country’s
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Economists are currently at odds with regard to the actual impact of major sporting events on the local economies of hosting cities, communities, or countries. This disagreement arises from the fact that there is no single, best method to carry out economic impact analysis.
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