Government and the Economy Portfolio
Part One: Economic Policy Analysis
Selected Policy: The CARES Act of 2020
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What occurred in the economy to prompt the government to pass or enact this legislation or act? In early 2020, the COVID-19 pandemic led to widespread shutdowns of businesses, schools, and public gatherings. This resulted in a sharp economic downturn, with significant job losses, a surge in unemployment, and a dramatic decline in consumer spending. The sudden halt to economic activity prompted urgent action from the government to prevent a deeper recession and to support individuals and businesses affected by the pandemic.
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What were the actions enacted in the policy? The CARES Act included several key provisions: direct stimulus payments to individuals, expanded unemployment benefits, and loan programs for businesses (including the Paycheck Protection Program). It also allocated funds for healthcare providers and public health initiatives, as well as support for critical sectors such as education and transportation.
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What was the intended goal of the economic policy? The primary goal of the CARES Act was to provide immediate financial relief to individuals, support small businesses, stabilize the economy, and mitigate the impact of the pandemic on the workforce and healthcare systems.
Part Two: Economic Downturn Analysis
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What does Gross Domestic Product tell us about the health of our economy? Gross Domestic Product (GDP) measures the total value of all goods and services produced in a country. It serves as a broad indicator of economic health; when GDP is growing, it suggests a thriving economy, while a declining GDP often signals economic troubles, such as recessions or downturns.
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According to the graph above, what happened to GDP after the First New Deal Legislation was enacted? Following the enactment of the First New Deal legislation, GDP began to recover from the depths of the Great Depression. The policies implemented helped stabilize the economy, leading to gradual increases in GDP as government spending and programs stimulated economic activity.
Part Two (continued): Unemployment Rate Analysis
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What happened to the unemployment rate between 2010 and 2019? Between 2010 and 2019, the unemployment rate steadily decreased as the economy recovered from the Great Recession. This period saw economic growth and job creation, resulting in a lower unemployment rate, reaching near historic lows by the end of the decade.
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Why does unemployment increase during a recession? Unemployment tends to increase during a recession due to reduced consumer and business spending. As demand for goods and services falls, businesses often cut back on production, leading to layoffs. Uncertain economic conditions make firms hesitant to hire new workers or maintain their current workforce.
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What do you think caused the spike in unemployment in 2020? The spike in unemployment in 2020 was primarily caused by the COVID-19 pandemic, which led to widespread lockdowns and social distancing measures. Many businesses were forced to close or dramatically reduce their operations, resulting in millions of job losses across various sectors, particularly in hospitality, travel, and retail.
Part Three: Evaluation and Alternatives
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In your opinion, was the policy effective based on the impact to the economic indicators such as GDP, unemployment rate, and inflation? Explain your response. The CARES Act was largely effective in stabilizing the economy during a period of unprecedented crisis. The direct stimulus payments provided immediate relief to households, helping to sustain consumer spending and stabilize the economy. Additionally, the expansion of unemployment benefits cushioned the financial blow for millions of unemployed individuals. As a result, GDP began to recover more quickly than anticipated, and while inflation pressures increased later on, the initial measures taken under the CARES Act played a crucial role in preventing a deeper recession.
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Determine alternative actions that could have been used by the federal government or the central bank to alleviate or divert the economic crisis that prompted your selected government policy from part 1. Explain if your alternative action is better for the overall health of the economy or not. An alternative approach poderia have been to implement a targeted approach to bail out specific industries most affected by the pandemic, rather than widespread stimulus payments and loans. For example, instead of distributing direct payments universally, the government could have focused resources on sectors like tourism and hospitality, which were hit hardest. While targeted assistance may have had the benefit of minimizing wasteful spending, it could also risk leaving out vulnerable populations who needed help. Therefore, while alternative actions could have provided a more focused response, they might not have effectively addressed the widespread uncertainty and immediate needs experienced by the overall population during the pandemic. The broad measures in the CARES Act arguably provided a quicker and more comprehensive form of relief.