Macroeconomics Data Response Test Name:

Read the following extract and answer the questions which follow:

US Congress approves economic stimulus package Feb 8, 2008, Xinhua News Agency, China

The U.S. Congress Thursday overwhelmingly passed an economic stimulus package which had been sought by President George W. Bush to fend off a possible recession. The House approved the bill by a 380-34 vote, just a few hours after the Senate leaders agreed on a modified version of the plan initially backed by the lower chamber last Tuesday. The Senate approved the bill by an 81-16 vote. According to the stimulus package, individuals who pay income taxes would get up to 600 dollars, working couples 1,200 dollars and those with children an additional 300 dollars per child. Workers who make at least 3,000 dollars but do not pay taxes would get 300 dollar rebates. The rebates were expected to cost about 100 billion dollars, and the package also includes close to 50 billion dollars in business tax cuts. The Senate also added a provision granting 300 dollar checks to seniors, disabled veterans and veterans' widows who could show 3,000 dollars in social security or veterans' disability benefits last year. The package will inject nearly 152 billion dollars into the economy this year and more than 16 billion dollars next year. Senate Republican Leader Mitch McConnell said the fiscal policy package transcended politics. "This is not a victory for Republicans or Democrats. This is a victory for the American people," he said. President Bush immediately welcomed the quick approval. "This plan is robust, broad-based, timely, and it will be effective," Bush said in a statement. "This bill will help to stimulate consumer spending and accelerate needed business investment." Treasury Secretary Henry Paulson also welcomed the approval, saying it would help inject money into the stressed U.S. economy quickly. "We're going to have the checks out beginning of May and this is largely going to be done by the time summer's over," he added.

(Xinhua News Agency February 8, 2008)

a) Define the following terms:

a.i. Recession

a.ii. Fiscal policy b) With the aid of a diagram, explain the situation now facing the US economy.

c) With the aid of a diagram, explain the economic stimulus package’s intended impact on the US economy.

d) Using information from the extract and your knowledge of economics, evaluate the impact of the fiscal stimulus package on the US economy.