Fiscal the program, $125 billion dollars was given

Fiscal policy is the use of tax policies and government spending to monitor and control economic growth. During the Great Recession, the federal government took several fiscal measures to boost the economy. One such measure was the Troubled Asset Relief Program (TARP). This $700 billion program was introduced in 2008 to buy risky assets from failing financial institutions. Some aspects of TARP were more successful than others were, but the whole program itself was very effective in saving the economy. The most effective aspect of TARP was the Capital Purchase Program. Under the program, $125 billion dollars was given to banks that were not financially healthy, but still had the potential to be saved. Under this program, the U.S. government bought preferred stock in eight banks: Bank of America/Merrill Lynch, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan, Morgan Stanley, State Street and Wells Fargo. To ensure that taxpayers were paid back, TARP required banks that received aid to give the government a 5 percent dividend that would increase to 9 percent in 2013. Doing so would encourage banks to buy back the stock within five years. The Treasury Secretary Hank Paulson predicted that bank share prices would increase by 2013 so the government would ultimately make a profit from TARP. Many believe that it is unlikely that the US financial system would have stabilized without TARP. Some money from TARP was later used to purchase troubled assets through the Fed’s TALF program and Treasury’s PPIP program. Even though the number of assets that were purchased was small, it improved their pricing and reduced the pressure on the system. Another way that TARP helped reduce damages during the depression was by providing $700 billion of TARP funds to bail out GM and Chrysler, which ensured that the auto manufacturers had “orderly bankruptcies.” It is believed that otherwise, both of those companies would have faced “disorderly” liquidation and massive layoffs occurring during the height of the recession. Another fiscal policy tool that the government used during the Recession was the American Reinvestment and Recovery Act, a follow-up to TARP. This act was a $787 billion package that was intended to save between 900,000 to 2.3 million jobs in the US. The goal was to stimulate consumer spending and instill confidence to spur economic growth. It also aimed to make people trust the financial industry again by limiting bonuses for executives at companies that received TARP funds. There were seven components to AARA. The first component was sending $260 billion in relief to families across the nation. These funds were received through tax cuts, tax credits and unemployment benefits, mostly in the first two years that the program was implemented. The second part was to create jobs by providing federal funds to modernize federal infrastructure. This was a win-win because the program created jobs and provided a public good out of taxpayer money. A study conducted by UMass Amherst found that one billion dollars spent on public works led to the creation of 19,975 jobs. The third component was to use federal funds to increase alternative energy production- creating jobs, funding research, and showing the government was committed to supporting the use of clean energy. Fourth, the government subsidized health care costs, helped computerize patient records, and helped facilitate the exchange of medical information among doctors. Fifth, AARA increased education spending, which improved education and created jobs. This was impactful as shown by the UMass study which found that one billion in federal spending created 17,687 education related jobs. Sixth, the AARA invested in science research and technology by funding broadband infrastructure in rural areas. And lastly, the AARA helped small business, by allocating $54 billion to help small businesses with tax deductions, credits and loan guarantees. This was especially important because small businesses create 70% of all new jobs, and are a very important part of the economy. Because of all the different initiatives included in the AARA, it is credited as being one of the most important fiscal policy measures introduced by the federal government, and for preventing the recession from turning into a depression.