Economic Slowdown: Issues and Policies (CRS Report for Congress)
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| Release Date |
Revised Jan. 2, 2009 |
| Report Number |
RL34349 |
| Report Type |
Report |
| Authors |
Jane G. Gravelle, Senior Specialist in Economic Policy; Thomas L. Hunderford, Specialist in Public Finance; Mark Labonte, Specialist in Macroeconomic Policy; N. Eric Weiss, Specialist in Financial Economics; Julie M. Whittaker, Specialist in Income Securi |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
In response to fears of an economic downturn, which have also been the subject of monetary policy intervention, legislators and the President have proposed economic stimulus packages. After negotiations with the Administration, an economic stimulus package (H.R. 5140) was introduced and passed by the House on January 29, reported by the Senate Finance Committee on January 30 (containing some provisions not included in the House bill, as well as elements that are similar), passed in final form on February 7, and signed into law as P.L. 110-185 on February 13. The prospects of another stimulus package remain. [â¦] Fiscal policy generally stimulates the economy through an increase in the budget deficit. For deficit-financed spending increases, the increase in total spending is direct. For deficit-financed tax cuts, the economy is stimulated via the increase in spending by the tax cuts' recipients. Any increase in spending as a result of fiscal stimulus is strictly temporary -- in the long run, the economy naturally adjusts to set spending equal to output. Economists have debated which policy proposals would be most stimulative. There is a consensus that proposals that result in more spending, can be implemented quickly, and leave no long-term effect on the budget deficit would increase the benefits and reduce the costs of fiscal stimulus. That being said, there is little consensus on which policy proposals best meet these criteria. Economists generally agree that spending proposals are somewhat more stimulative than tax cuts since part of a tax cut will be saved by the recipient. The most important determinant of stimulative fiscal policy's effect on the economy is its size. The recent stimulus package increased the deficit by about 1% of GDP [gross domestic product].
