Question

In 150-200 words, explain how the American Recovery and Reinvestment Act could create jobs.

Answer 1

The American Recovery and Reinvestment Act (ARRA) was designed to save and create jobs, as well as to cushion the economic downturn and make crucial public investments. At the time of passage, the Council of Economic Advisers (CEA) made estimates of the employment effects of the Act for the economy as a whole. As the money is being distributed by the various agencies, there is interest in estimates of the likely jobs effects of the individual pieces. Of course, as projects swing into action, the government will gather actual data on reported job creation. This report describes the estimating procedures used so far; specifies procedures to be used by recipients for estimating job creation going forward; discusses reporting requirements for job creation; and describes the procedures the CEA will use to evaluate the job creation and retention benefits of the ARRA going forward.

AGGREGATE ESTIMATES OF THE JOB IMPACT OF THE ARRA

The methodology used to estimate the job impact of the ARRA was described in detail in Romer and Bernstein (Obama Transition Document, January 11, 2009). In this section we briefly summarize the methodology and discuss the results.

Answer 2

The correct answer is: "by boosting aggregate demand and, in turn, economic growth".

The American Recovery and Reinvestment Act (ARRA) was approved by the US Congress in 2009, during the presidency of Barack Obama, in response to the Great Recession.

It was a package of measures inspired in Keynesian economics, which directed an important amount of money, using public spending a as fiscal stimulus that would boost consumption and investment and, in consequence, aggregate demand figures and economic growth.

The fiscal policy was effective and the US was able to overcome the recession much more quickly than other countries that used other types of strategies such as austherity measures to enhance growth.