HOW DOES THE US HANDLE

THE AFTERMATH OF ARRA ON

NATIONAL DEBT?
Group 3
Pham Gia Khang, Hong Ha Giang,
Nguyen Dang Thuc, Ly Phuc Thanh
AGENDA
What is ARRA? The aftermath

A. Empirical Evidence
What is it and its effect?
B. Explanation

How did the US government manage the national debt?

How did the
A. Methods B. Debt Ceiling C.Budget Deficit
I. What is ARRA?
Definition ARRA ($ billion)
$275 $288
The American Recovery and Reinvestment Act of 2009
(ARRA) was a fiscal stimulus bill signed by President
Barack Obama on Feb. 17, 2009, aiming to stimulate the
economy by preserving jobs and creating new ones.

It earmarked expenditures for: It targeted: $224

nationwide healthcare tax cuts Recovery Relief Reinvestment
infrastructure tax credits
education improvements and extended unemployment benefits to families
I. What is ARRA?
The effect of ARRA cannot be deemed negative or positive
due to controversial points of view
(in terms of Job Creation and Retention, Timing of Effects,...)

Congress added to ARRA spending in subsequent budgets,

eventually raising the total cost to $831 billion
between 2009 and 2019
II. Aftermath
Empirical Evidences

Government debt increased after the

Great Recession. As the government
needed resources to support many
areas during the Recession, therefore,
the government debt increased as a
result.
II. Aftermath
Empirical Evidences

The increase in debt ratio indicates the

ability to repay the debt. High ratio
indicates high possibility of a default.
Explanation
Hypothesis

The increase in government debt is resulted from an accumulative increase in

primary deficit and real interest rate
Tax Revenue
Empirical Evidence

Since 2010, due to the effect of fiscal

years, US tax revenue, gradually
increased, except for 2019 - 2020
Government Spending
Empirical Evidence

From 2009 to 2020, the expenditure of the

United States also increased gradually
Government’s budget
Empirical Evidence

From 2000 - 2028, the US government runs

a budget deficit
 Real Interest Rate
Empirical Evidence
(US Real Interest Rate (%) from 2008 - 2021)

From 2008 - 2011, the real

interest rate decreased
sharply
From 2011 - 2019, the real
interest rate increased sharply,
despite fluctuations
From 2019 - 2021, the real
interest rate decreased
significantly
 Conclusion
From hypothesis to empirical evidence

As the US government has run deficits since

2008, the deficits contribute to the existing
debt of every year. Applying the above formula
of government debt in year t the debt increases
over time.
 III. How did the US government
handle the debt
Methods

Run budget deficit Issue Treasury bonds for the Fed to buy Borrowing debt to pay debt
III. How did the US government
handle the debt
Debt ceiling

To avoid default, the US government set a limit

for government debt. During ARRA, the US
government invested in many sections and
increased the debt ceiling to lend more to
relieve the burden on the government budget.
Witnessing a strong increase since October
1990 and a sharply increase on Aug 2021 and
still increasing until now.
III. How did the US government
handle the debt
Runs budget deficits

The government ran budget deficits during this

period as a deliberate strategy to support
economic recovery. While this increased the
national debt in the short term, it was
considered necessary to combat the economic
downturn in the long run.
III. How did the US government
handle the debt
Why does the US government use deficits

The US government decided to use economic

growth (increase spending and investment with
a sustained interest rate level) to prevent debt
increases over the ceiling and resulting in
default.
run deficit -> GDP increase -> ratio decrease
Thank you for listening
Reference