The Economic Stimulus Package

Group B: Bruce Cheng, Michael Guinn, Philip Musterman, Michelle Quach, & Brian Swink

At Issue

Economic Stimulus Package

• a fiscal policy, monetary policy to boost Gross Domestic Product (GDP)

• addresses the problem of…

Economic Recession: • a decline in (GDP) that is successive for at least

two quarters

Economic Trends

http://www.culturaleconomics.atfreeweb.com/111%20114%20MBB%20Macro%20Graphics/Macro/Fig%206.1%20Business%20Cycle.jpg

Who are the decision makers?

• U.S. Congress– House of Representatives– Senate

• U.S. President– Right to veto

• Federal Reserve– Controls the interest rate

Considerable Options• Main point - to redistribute money to consumers, so the economy

is stimulated through consumer spending• Possible Proposals

– Redistribute 168 billion USD – Tax rebates to everyone who received a paycheck in 2007 ($300-

$600/person)– Families with children would receive an additional payment of

$300 per child – Give businesses incentives to purchase new equipment such as

tax breaks – Federal Housing Administration-to insure higher-priced mortgages and

to help homeowners threatened by foreclosure – increase the size of tax payments for the working poor, increase

food stamp funds, and restore unemployment benefit extensions

Data & Information Necessary for Model• Examine current Economic Theory• National Income and Product Accounts

– Bureau of Economic Statistics• Previous economic incentive packages, how

they were implemented and if they were successful

• Housing Sales, GDP, GNP, Inflation (CPI), Interest Rates

• Tax Information from IRS

What Kind of Models are Necessary?

1. Macroeconomic Models– Deficit Spending Model

2. Money Generation Model

3. Federal Budgeting Model

Deficit-Spending Model

• To encourage private expenditures, government may borrow funds from the foreign market, which increases the national deficit

• Private investment is stimulated, that increases the ability of the economy to supply output in the long run

• Variables for Model– Present consumption– Future consumption– Present Borrowing Rate– Representations of Utility Functions

• Individual’s well being (i.e. income)

Money Generation Model

• Show how much money is being spent based on tax refund

• Based on percentage of state population affected

• Possible generation of sales– Sale tax on purchases– Businesses

Federal Budgeting Model

• Shows the effect of refunds on the budget

• How to reallocate funds?

• Explain how refund will generate more tax revenue

Addressing Needs in a DSS

• Eliminate/reduce unbiased results• Information Sharing within decision makers• Allow access to data and visual aids for decision

makers• Have ability to drill-down for additional

information• Compare options from model results

Problems with Data & Analyses

• Any budgeting model is based on projections– Can’t predict the future

• The best and worst case scenarios are taken into account– What about in between?

• Data for the model comes from the IRS, Government Accounting Office – last audit claimed IRS and other gov’t. agencies did

not account for anything accurately– figures should be suspect

Problems with Decision

• Decision to finance out of taxes or borrow– If we borrow, are we using internal funds or

international debt?

• Does not account for the long term affect– Borrowing against short-term consumption

• As a result, the question is…

*Is there a foregone use of the future?

Questions?