Between 2007 and 2009 the U.S. economy experienced a severe recession. In an effort to stimulate the economy, the federal government passed a stimulus package. Explain the federal government’s use of fiscal policy (the stimulus) to promote growth and employment. Support your ideas with concepts found in the assigned reading. Include the following in your response:
- Discuss some actions taken by the federal government and whether the recession would have been longer and the unemployment rate higher if the government had not acted by passing the stimulus package?
- If left alone, do you believe the economy would have corrected itself as suggested by Classical economic theory? Explain.
- Discuss the effect these policies had on increasing the size of the budget deficits and the national debt.
Between 2007 and 2011 the federal budget deficit grew from $160.7 billion to $1,299.6 billion, and the national debt grew from $8.9 trillion to $14.8 trillion. (Figure 10.1: The ratio of debt to GDP, 1977-2011.)
In your post, differentiate the budget deficit from the national debt. How do you think the increases in the budget deficits and the national debt will affect the economy in the future?