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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?
