American Recovery Act Essay Example | Topics and Well Written Essays - 1000 words

American Recovery Act - Essay Example Facts about the Act The act was developed by the Congress for fulfilling three most important goals of the country. The primary goal was to generate job opportunities within the country and at the same time perform activities for safeguarding the job opportunities that exist. The second important goal of the act was to encourage present activities for the betterment of the economy and also to invest for activities aimed at future long-term economic growth in the country. The third goal of the act was to promote ‘above standard’ levels of responsibility along with transparency in expenses of the government. The act intended to achieve its goals through provision of 288 billion Dollars to several business houses and families in the form of tax reduction sand benefits. The act also fostered provision of 224 billion dollars in the form of employment benefits and various other privileged programs. Furthermore, it was aimed to make available 275 billion dollars for the federal dealings, funding and loans. The act even made it mandatory that the individuals, families and businesses which receive recovery funds should report their mode of operating with the funds on a quarterly basis (Recovery, 2011). It is worth mentioning that despite of these wise objectives the act failed to secure the interest of the economy (Wagner, 2010). Effectiveness of the Recovery Act Wagner (2010) identified an important reason behind the failure of the Recovery Act. According to him, Keynesian multipliers have acted as stimulus towards transforming the act into a ‘failure’. The architects of the Recovery Act made use of the basic algebra to anticipate creation of job through the fiscal stimulus of the period 2009/2010. The fiscal stimulus through Keynesian multiplier is effective in providing momentary control in the economy during periods of excessive unemployment. The author downgraded the Keynesian economics on the basis of the fact that these mechanisms assist in measuring the unemployment rate but fails to recognize and apply means to put the unemployed persons back to work (Wagner, 2010). The theoretical aspect described in the above section can be supported through practical evidences from the unemployment facts of the country after the implementation of the Recovery Act 2009. The rate of unemployment of US during the month of August for the year 2009 stood at 9.7%. This percentage figure was the highest within a period of 26 years in the history of the country. The payrolls of the country declined by 6.9 million after the US economy had to face the recession which started its reign during December 2007. The Recovery Act was unable to halt the falling rate of employment that continued to decrease during the recession and reached to 14.9 million in 2009. Although the rate of decline in payrolls was below anticipation, the rate of unemployment grew up to a level which was more than the anticipated margin. In most of the sectors of the e conomy, the payroll was observed to decline except that in the sector of healthcare. The amount of total working hours in the economy also decreased by 0.3% in the same year i.e. 2009. The situation of long-run employment was even measured to have worsened than the previous years. These scenarios of employment during the year 2009, when the government took the initiative of passing the act determines a clean picture of its failure to fulfill its fundamental

Demand-side and Supply-side Policies on Economic Growth Case Study

Demand-side and Supply-side Policies on Economic Growth - Case Study Example These policies are either expansionary (catalyze spending in a recessionary economy) or contractionary (reduce spending in an inflationary economy). Also, supply side policies are those policies employed by the government to increase the country’s productivity hence shifting the aggregate curve outwards. They also are designed to affect an economy’s ability to produce goods and services. They increase the country’s aggregate productivity over time and improve the potential of the economy to produce. These policies are always expansionary with an aim increasing an economy’s production capacity which translates into increased living standards (Sloman, 2006). Demand side policies are further broken down to fiscal and monetary policies. Fiscal policies are those policies that are aimed at bringing changes in the government spending or taxes collected while monetary policies aim at bringing changes to the money supply engineered by the central bank. Expansionar y policies are then defined as those policies designed to stimulate economic growth through changes in real Gross Domestic Product (GDP) and the potential output of the economy (Economics Online, 2013). The policies are characterized and implemented in the demand side by any of the four categories of expenditure i.e. consumption expenditure, investment expenditure, government expenditure, or net export expenditure that constitutes the Gross Domestic Product (GDP). On the supply side, the expansionary policies are designed to add flavor to the capacity of production of the economy through labor policies (education, immigration, retirement), capital accumulation, research and development (seeking technological improvements), or promotion of resource availability. Monetary policies lower rates of interest that accompany an increase in money supply hence affecting investment expenditure. A monetary policy would increase the amount of local currency available in the exchange market which will then weaken the rates of exchange with other currencies. Also, the lower rates of interest will make the economy unattractive to investors when compared to other economies which will lead to a capital overflow resulting in the sale of domestic assets and the currency in the exchange market resulting in an ultimate weak currency. A weaker currency makes exports relatively cheaper to foreign buyers hence will stimulate the demand for the local goods while at the same time imports will be more expensive to domestic buyers leading to a reduced demand for imported goods (Pettinger, 2011). This will result in an increase in Net Export expenditure. In times of large deficits in the budget, fiscal policies tend to be missing from the policy maker’s ideologies. These policies are easy to legislate as they are politically popular and supported. Monetary expansionary policies are ineffective and unpredictable compared monetary contractionary (Sloman, 2006). In a case where the wea k economic growth or high level of unemployment worries the Federal Reserve, the policy will react by increasing bank reserves by open market purchase (where the central bank buys or sells government bonds on the open market to manipulate the short term interest rate and supply of base money in an economy) prompting banks to convert their reserves into loans to their customers.