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Forums → WEPR → 900B dollars for the economy: yes or no and why

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DDX
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DDX
3,562 posts
Nomad

I say, Good move Obama! "yes"
there are two ways to raise America out of its rut (we're in a depression... durrrr). With the Dow Jones industrial at its lowest point since the depression, and Unemployment at a whopping 8.7% (released 2 months ago) the only thing worse than that is to add inflation to the equation. The two ways I spoke of are Deficit spending and Tax cuts.

Deficit spending:
This means the government borrows money (10 trillion dollar debt go United States! Thanks to China for lending the money) the borrowed money then goes to infrastructure (road bridges schools) this money is then going to the workers, who purchase goods and services from Firms. This method is the best method to increase the size of the economy, however borrowing money, the government will drive up interest rates making investment hard for Firms. A double edged sword but effective nonetheless.

Tax cuts:
these work similarly to deficit spending however, there is less bang for your buck. The tax cut goes directly to consumers instead of going to Infrastructure, and some of the money is directly saved (leaked from the circular flow)
http://upload.wikimedia.org/wikipedia/commons/thumb/b/b8/Circular_flow_of_goods_income.png/350px-Circular_flow_of_goods_income.png

So for my 18th birthday, instead of a new car, my dad gave me 5000 dollars to invest in stocks and savings bonds. He said I had to earn a car, because I cant rely on him for the rest of my life. As most of you know the stock market is doing horrible, except this week, when we are finally feeling the effects of the 900B stimulus package. Initially I had lost 300 dollars, but as of this week I am up 600, making a grand total of 5600 dollars invested in Bank of America.That is why I support Obama's decision, although I had initially rejected it.

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FireflyIV
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FireflyIV
3,224 posts
Nomad

(we're in a depression... durrrr)


A depression is when the PPF of an economy shrinks by 10%. The US isn't in a depression.

Deficit spending:


Shouldn't you call that the multiplier effect? As that is essentially what you described in the subsequent paragraph.

and some of the money is directly saved (leaked from the circular flow)


That would be the biggets limitation of this policy. In the current climate the vast amount of people affected by this tax cut will save it, not spend it, which is what is needed.

That capital does not leak from the circular flow, rather, when people save, they out it in banks so it is a form of investment, unless of course they put it in a shoe box under their bed, which does not happen in the majority of cases.

That is why I support Obama's decision, although I had initially rejected it.


I am all for a stimulus in principle. But this has been poorly executed and has arrived too late to do much good.
DDX
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DDX
3,562 posts
Nomad

technically it is a leakage from the circular flow, although banks lend it out to firms, but strictly speaking it counts as a leakage. (Princeton AP Macroeconomics review 2007)

A depression is when the PPF of an economy shrinks by 10%. The US isn't in a depression.


Fire Fly, my fault it is not a depression, I have it mixed up with recession, which is 2 quarters of negative growth. Where Depression is 4 quarters of negative growth.

Shouldn't you call that the multiplier effect? As that is essentially what you described in the subsequent paragraph.


Deficit spending is the multiplier effect, my econ teacher just calls it that, as he said the AP graders don't care as long as you get your point across in economic terms.

I am all for a stimulus in principle. But this has been poorly executed and has arrived too late to do much good.


I agree, although I am happy because the market is currently in a 4 day growth period, although I do not know for how long.
FireflyIV
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FireflyIV
3,224 posts
Nomad

Fire Fly, my fault it is not a depression, I have it mixed up with recession, which is 2 quarters of negative growth. Where Depression is 4 quarters of negative growth.


There are numerous definitions for the word 'depression', but generally it is taken as an economy shrinking by 10%.

Deficit spending is the multiplier effect, my econ teacher just calls it that, as he said the AP graders don't care as long as you get your point across in economic terms.


In that case your teacher should just be calling it fiscal policy. Deficit spending implies the government is borrowing the money, which isn't always the case.

I agree, although I am happy because the market is currently in a 4 day growth period, although I do not know for how long.


No dount the stimulus will benefit some people, but in the long term, it won't do what it set out to achieve.
DDX
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DDX
3,562 posts
Nomad

In that case your teacher should just be calling it fiscal policy. Deficit spending implies the government is borrowing the money, which isn't always the case.


Its expansionary fiscal policy actually

There are numerous definitions for the word 'depression', but generally it is taken as an economy shrinking by 10%.

yup that is true, it is also defined as 2 periods of recession. Or 4 quarters of negative GDP growth.
FireflyIV
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FireflyIV
3,224 posts
Nomad

Its expansionary fiscal policy actually


I was just making the point that fiscal spending does not always result in a fiscal deficit.

yup that is true, it is also defined as 2 periods of recession. Or 4 quarters of negative GDP growth.


There are tons of definitions, however the most generally accepted are a 10% drop in GDP or a recession lasting more than 3 years.
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