Summary: Fiscal Policy Response To Ongoing Recession

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Rajiv Baheti Baheti 1 Dr. Carol Scotese ECON 302 14 April 2011 Fiscal Policy Response to the Ongoing Recession TARP, or the Troubled Asset Relief Program, is a government program created for the establishment and management of a Treasury fund in order to curb the ongoing crisis. Its intention at first was to preserve the US financial sector and avoid future structural collapse by allowing the Department of the Treasury to purchase so-called “troubled assets”. Instead, a different approach was taken once the program was put into place. TARP gives purchasing power of $700 billion to the U.S Treasury to buy up mortgage backed securities (MBS) from institutions across the country, in an attempt to strengthen market stability, to…show more content…
Its three immediate goals include: creating new jobs and saving existing ones, spurring economic activity and investing in long-term growth, and fostering unprecedented levels of accountability and transparency in government spending. The Recovery Act intends to achieve those goals by the following: providing $288 billion in tax cuts and benefits for millions of working families and businesses, increasing federal funds for education and health care as well as entitlement programs (such as extending unemployment benefits) by $224 billion, making $275 billion available for federal contracts, grants and loans, and requiring recipients of Recovery funds to report quarterly on how they are using the money. The rationale for this stimulus comes out of the Keynesian economic tradition that argues that government budget deficits should be used to cover the output gap created by the drop in consumer spending during a recession. While offering financial aid directly to local school districts, expanding the Child Tax Credit, and underwriting a process to computerize health records so that medical errors can be reduced with health care costs being saved, the Recovery Act is targeted at infrastructure development and enhancement. For instance, investment in the domestic renewable energy industry and the weatherizing of 75 percent of federal buildings along with more than one million private homes around the country is planned. Among the many projects that the Recovery Act will fund include construction and repair of roads and bridges as well as scientific research and the expansion of broadband and wireless service. With many of Recovery Act projects focused more immediately on jumpstarting the economy others, especially those involving infrastructure improvements, are expected to contribute to economic growth for many

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