Question

The main feature of the 2008 economic stimulus package was (LO6) a) taxpayer rebates. b) an across-the-board tax cut. c) an increase in spending on food stamps and unemployment benefits. d) a large highway building program.

Short answer

The main feature of the 2008 economic stimulus package was \(a)\) taxpayer rebates, which aimed to boost consumer spending and support the economic recovery during the Great Recession.

Step-by-step solution

Understanding the 2008 economic stimulus package

The 2008 economic stimulus package was designed to stimulate the US economy during the Great Recession. It aimed to boost consumer spending and thereby support the economic recovery.

Analyzing the four options

a) Taxpayer Rebates: These are cash payments to taxpayers, which are meant to boost their spending and spur economic growth. b) Across-the-board tax cut: This refers to a reduction in taxes for everyone, which is intended to increase disposable income and encourage spending. c) Increase in spending on food stamps and unemployment benefits: This involves additional government spending on social safety nets, which is supposed to directly help those in need and thus also stimulate the economy. d) Large highway building program: This entails large-scale infrastructure projects, which are often geared towards boosting the economy through job creation.

Determining the main feature

The main feature of the 2008 economic stimulus package was taxpayer rebates (a). The package provided tax rebates to millions of taxpayers, aiming to encourage consumer spending and kickstart the economy. It also included other measures, such as increasing spending on food stamps and unemployment benefits, but the primary focus was the tax rebates.

Conclusion

The correct answer is (a) taxpayer rebates. The 2008 economic stimulus package's main feature aimed at boosting consumer spending and supporting economic recovery during the Great Recession.

Key concepts

Great Recession

The Great Recession was a significant period of economic decline that affected countries around the world, starting in 2007 and peaking in 2008. This recession was triggered by a financial crisis in the United States housing market. A large number of mortgages went into default, leading to widespread financial instability. Banks faced huge losses, and credit markets froze.

During a recession, economic activities, such as spending, production, and employment, typically decrease. The Great Recession was particularly severe, marking the most significant downturn since the Great Depression of the 1930s.

• Key causes included the collapse of large financial institutions.
• Significant drops in consumer wealth, mainly due to fallen housing prices.
• Sharp declines in economic activity were also witnessed globally.

Governments around the world took various measures to stimulate their economies and avoid further downturn. In the US, the economic stimulus packages aimed to mitigate the effects and foster recovery.

Taxpayer Rebates

Taxpayer rebates were a central feature of the 2008 economic stimulus package in the US. These rebates were essentially cash payments given directly to taxpayers. The goal was to boost individual purchasing power and encourage people to spend more money.

The idea behind taxpayer rebates is based on the economic theory of increasing "disposable income." When individuals have more money on hand, they are more likely to purchase goods and services, which helps to stimulate the economy.

• Rebates usually target low to middle-income families more significantly, as they tend to spend a higher portion of their income.
• These payments aimed to have an immediate effect, especially crucial during times of economic downturn like the Great Recession.

Taxpayer rebates can provide a quick boost to consumer confidence, encouraging spending and potentially leading to broader economic recovery.

Consumer Spending

Consumer spending refers to the total expenditure by households on goods and services. It is a critical component of a country's economic activity. In times of economic turbulence like the Great Recession, consumer spending typically decreases as people tend to save more and cut costs.

Increasing consumer spending is often a primary objective of economic stimulus efforts. If people are spending, businesses thrive, which can lead to growth in employment and further spending.

In the context of the 2008 economic stimulus package:

• Taxpayer rebates aimed to immediately boost consumer spending by increasing household income.
• Increased expenditure on social programs, like food stamps and unemployment benefits, also added to consumers' spending ability.

Ultimately, consumer spending acts as a powerful engine driving broader economic recovery.

Economic Recovery

Economic recovery denotes the phase following an economic downturn, where activities begin to stabilize and grow again. After a period like the Great Recession, recovery involves getting back to prerecession levels of growth and employment.

Factors influencing recovery include:

• Government interventions, like stimulus packages, designed to increase jobs and strengthen market confidence.
• Restoration of consumer and business confidence, leading to increased spending and investment.

Initiatives such as the 2008 stimulus package are pivotal in accelerating recovery. By providing financial relief to taxpayers and increasing social spending, the government sought to kickstart consumer spending, inject liquidity into the economy, and ultimately move towards a healthy economic state. However, recovery from massive recessions like the Great Recession can be gradual and involve a range of policies beyond immediate financial measures.