Student Name: Competing Economic Theories Background: Due to a variety of factors, the United States found itself in the grips of an economic recession in 2008. In December of 2007 unemployment was 5%. By June of 2009 it had nearly doubled to 9.5%. Once elected, President Obama met with the leaders in Congress to try to figure out how to create jobs. President Obama supported a more Keynesian approach, while the Republican members of Congress favored a more Supply-side approach. The result of these negotiations was the American Recovery and Reinvestment Act of 2009, which incorporated both approaches. Part 1 Instructions: Research Keynesian Economic Theory and Supply-side Economic Theory on the internet then explain the difference between the two theories regarding the best way to create jobs during a recession. (10 points) Student Name: Competing Economic Theories Part 2 Instructions: Analyze the provisions of the American Recovery and Reinvestment Act below and answer the questions that follow. American Recovery and Reinvestment Act of 2009 Key Provisions: $40 billion to provide extended unemployment benefits through Dec. 31, and increase them by $25 a week; $20 billion to increase food-stamp benefits by 14%; $3 billion in temporary welfare payments. $14 billion to give one-time $250 payments to Social Security recipients, poor people on Supplemental Security Income, and veterans receiving disability and pensions. $46 billion for transportation projects, including $27 billion for highway and bridge construction and repair; $8.4 billion for mass transit; $8 billion for construction of high-speed railways and $1.3 billion for Amtrak. S4 billion for public housing improvements. $6.4 billion for clean- and drinking-water projects. $54 billion in state fiscal relief to prevent cuts in state aid to school districts, with up to $10 billion for school repair; $26 billion to school districts to fund special education and the No Child Left Behind law for students in K-12; $17 billion to boost the maximum Pell Grant by $500 to $5,350; $2 billion for Head Start. $4 billion in grants to state and local law enforcement to hire officers and purchase equipment. About $115 billion for $400 per-worker, S800 per-couple tax credits in 2009 and 2010. About $13 billion to provide a $2,500 expanded tax credit for college tuition and related expenses for 2009 and 2010. The credit is phased out for couples with incomes over $160,000. $2.5 billion to make sales tax paid on new car purchases tax deductible. Total Cost $789 billion Student Name: Competing Economic Theories Questions 1. Which provision of the American Recovery and Reinvestment Act best demonstrates the Keynesian Economic Theory for creating jobs? Explain. (5 Points) 2. Which provision of the American Recovery and Reinvestment Act best demonstrates the Supply-side Economic Theory for creating jobs? Explain. (5 Points) Student Name: Competing Economic Theories 3. President Obama favored the Keynesian approach to job creation, while the Republicans in Congress preferred the Supply-side approach. In the end, both theories were represented in the American Recovery and Reinvestment Act, but they were not equally represented. Which economic theory was represented more in the American Recovery and Reinvestment Act? Explain. (5 Points) 4. By the beginning of 2015, the unemployment rate had fallen to 5.6% from a high of 10% in October of 2009. Why is it difficult to prove which economic theory was more responsible for creating jobs and lowering the unemployment rate? (5 Points)