Answer to Question #49504 in Macroeconomics for Chris-Obi

Question

In response to the 2008 financial crisis, the policy maker enact the "Economic Stimulus Act of 2008" to create demand and prevent prices from falling. The content of the act can be found as follows,

1) Tax rebate to low or middle income workers
2) Tax incentive to stimulate business investment
3) Encourage loan modification to help homeowners with troubled asset by relaxing loan limit of GSEs

After 6 years, how can we justify the stimulus package?

Answer 1

The Economic Stimulus Act of 2008 was aimed at increasing disposable income temporarily through tax rebates in the hope this would stimulate spending and end or at least mitigate the severity of a US economic slowdown. We find that to a significant extent they succeeded. The stimulus payments are initially being spent at significant rates. These rates are slightly higher than those observed in 2001 when fiscal policy has been credited with helping end the 2001 recession.