American Recovery and Reinvestment Act of 2009

The American Recovery and Reinvestment Act of 2009, abbreviated ARRA (Pub.L. 111-5) and commonly referred to as the Stimulus or The Recovery Act, is an economic stimulus package enacted by the 111th United States Congress in February 2009.
The stimulus was intended to create jobs and promote investment and consumer spending during the recession. The rationale for the stimulus comes out of the Keynesian economic tradition that argues that government budget deficits should be used to cover the output gap created by the drop in consumer spending during a recession. The modern consensus (a blend of thinking from New Keynesian and New Neo-classical theory in economics) favors monetary over fiscal policy like the fiscal stimulus.[1] However, the Federal Reserve had already cut interest rates to zero, greatly reducing their policy options. The flow of finances was stagnated because of a liquidity trap, also limiting monetary policy effectiveness. While many economists agreed a fiscal stimulus was needed under these conditions, others maintained that fiscal policy would not work because government debt would use up savings that would otherwise go to investments, what economists call crowding out. Proponents countered that the negative effects of crowding out are limited when investment has already stagnated.

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