Following six consecutive years of expansion, the U.S.  economy peaked in December 2007, beginning a recession that continued throughout 2008 and 2009. This was triggered by breakdowns in key credit markets that posed great risk to the financial system and the broader economy.
The Federal Reserve responded with unprecedented measures to unclog credit markets and free up the financial flows vital to a well-functioning economy. Besides lowering the federal funds rate target to virtually zero, the Federal Reserve expanded its role as lender of last resort by providing credit to banks and other financial institutions as well as businesses that were unable to secure adequate credit accommodations from banking institutions. To provide additional stimulus to the weakening economy, the U.S. government enacted the Economic Stimulus Act of 2008. The act was designed to provide temporary (one-time) tax rebates to those lower- and middle-income individuals and households who would immediately spend it. About $113 billion was dispensed, which amounted to about 0.8 percent of GDP. The government hoped the tax rebates would burn such a hole in peoples' pockets that they would not be able to resist spending it, therefore adding to aggregate demand. This optimism was unwarranted. It turned out that only 10-20 percent of the tax rebate dollars were spent: Most of the money went into household saving or to paying down past debt such as credit card bills, neither of which directly expanded the economy.

When Barack Obama became president in 2009, he inherited an economy that was falling deeper into recession. Obama noted that decreases in consumption and investment spending continued to drag the economy downward. The result was a fiscal stimulus program of $789 billion, the most expansive unleashing of the government’s fiscal firepower in the face of a recession since World War II. The stimulus included $507 billion in spending programs and $282 billion in tax relief, designed to increase aggregate demand: If more goods and services are being bought, whether cement for a new highway or groceries paid for with a household tax cut, there is less chance of decreasing demand resulting in companies laying off workers, which would result in greater declines in demand and a deeper downturn. 

What do you think? Does the U.S. government have enough ammunition to combat a future economic downturn?