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?