Question

The \(\$ 787\) billion stimulus package (LO8) a) had little effect on ending the Great Recession b) ended the Great Recession almost immediately c) was basically a Keynesian strategy to end the recession d) had little effect on the federal budget deficit

Short answer

The correct statement is (c): The $787 billion stimulus package was basically a Keynesian strategy to end the recession. This is because Keynesian economics emphasizes the use of government intervention and spending to stimulate economic growth during a recession.

Step-by-step solution

Analyzing the statements#a) and b)

Review the effects of the \(787\) billion stimulus package on the Great Recession. Compare the statements (a) and (b) to determine if the stimulus package had little effect on ending the Great Recession or if it ended the Great Recession almost immediately.

Understanding the Keynesian strategy

Research on Keynesian economics and its strategies to end recessions to be able to identify if statement (c) - the \(787\) billion stimulus package was basically a Keynesian strategy to end the recession - is correct.

Assessing the impact on the federal budget deficit

Analyze the relationship between the stimulus package and the federal budget deficit to determine if statement (d) - the stimulus package had little effect on the federal budget deficit - is accurate.

Identifying the correct statement

Based on the information and analysis gathered in Steps 1, 2, and 3, identify the correct statement among options a), b), c), and d).

Key concepts

Great Recession

The Great Recession was a severe global economic downturn that began in 2007 and lasted until 2009. It was sparked by the collapse of the housing market in the United States, leading to a financial crisis and, subsequently, a widespread economic slump. Many businesses closed, housing prices plummeted, and unemployment rates soared. This economic downturn was felt worldwide, affecting millions of people and numerous industries.
Governments around the world took various measures to stimulate their economies and restore growth. In the United States, one of the main responses was a stimulus package, aimed at invigorating economic activity and lifting the nation out of recession. Understanding the dynamics of the Great Recession is crucial to grasping why specific economic policies, like stimulus packages, were implemented. The recession underscored vulnerabilities in financial systems and spurred discussion on regulation and economic intervention by governments.
Policies employed by governments to mitigate such economic downturns often have lasting effects on both fiscal and monetary environments.

federal budget deficit

A federal budget deficit occurs when a government spends more money than it collects in revenue over a particular period. During economic downturns like the Great Recession, deficits often increase as governments attempt to stimulate the economy through increased spending. This can result in higher national debt, as governments need to borrow money to cover the shortfall.

• Government revenues typically fall during recessions due to decreased income and corporate taxes from reduced economic activity.
• At the same time, spending often increases as governments offer unemployment benefits and other social safety nets.

In the context of the Great Recession, the United States federal government faced significant budget deficits. The decision to implement a large stimulus package—totaling $787 billion—meant increasing the deficit further. Supporters argued that it was necessary to boost demand and prevent further economic decline, while critics worried about the long-term impacts on national debt. This example illustrates the delicate balance between stimulating the economy in the short-term and managing fiscal responsibility over the long term.

stimulus package

A stimulus package is a set of economic measures put forth by a government to encourage economic growth and reduce the severity of a recession. Typically, stimulus packages can include tax cuts, public spending increases, and measures to boost investments. The primary goal is to reinvigorate economic activity and restore confidence among consumers and businesses.

Keynesian Economics

Keynesian economics supports government intervention during economic downturns, advocating for increased public expenditures and reduced taxation to boost demand. The 2009 stimulus package in the United States was a quintessential example of a Keynesian strategy. By injecting $787 billion into the economy, the government aimed to increase consumer spending, support businesses, and reduce unemployment rates.
The stimulus package was seen as an attempt to prevent a prolonged recession and instill optimism in a wounded economy. It focused on various sectors, including infrastructure, education, and health care, promoting job creation and economic stability. Despite debates regarding its effectiveness, the stimulus package played a critical role in stabilizing the economy during the Great Recession.