American Rescue Plan

Definition

The American Rescue Plan is a $1.9 trillion economic stimulus package passed by the U.S. Congress and signed into law by President Joe Biden in March 2021. It was designed to provide relief and support to individuals, families, businesses, and state and local governments during the ongoing COVID-19 pandemic and its economic impacts.

5 Must Know Facts For Your Next Test

1. The American Rescue Plan provided direct payments of up to $1,400 per person to eligible individuals and families, as well as extended unemployment benefits.
2. The plan included $350 billion in aid to state, local, tribal, and territorial governments to help cover pandemic-related costs and revenue shortfalls.
3. The legislation allocated $170 billion to K-12 schools and higher education institutions to support safe reopening and address learning loss.
4. The American Rescue Plan expanded the Child Tax Credit and Earned Income Tax Credit, providing additional support for low- and middle-income families.
5. The plan included $160 billion for COVID-19 vaccination, testing, and contact tracing efforts to help control the spread of the virus.

Review Questions

• Explain how the American Rescue Plan's fiscal policy measures are intended to stimulate the economy.
  • The American Rescue Plan utilizes expansionary fiscal policy through increased government spending and tax cuts to stimulate economic activity. The direct payments to individuals and families, extended unemployment benefits, and aid to state and local governments are designed to boost consumer spending and support aggregate demand. Additionally, the plan's investments in areas like vaccination efforts, education, and small business assistance are aimed at promoting economic recovery and growth in the long run.
• Describe the role of automatic stabilizers in the American Rescue Plan and their impact on the economy.
  • The American Rescue Plan builds upon existing automatic stabilizers, such as unemployment insurance and food assistance programs, to help cushion the economic impacts of the pandemic. These automatic stabilizers automatically increase government spending and reduce taxes during economic downturns, without the need for new legislation. By providing a safety net for individuals and families, automatic stabilizers help maintain consumer spending and prevent a deeper economic contraction, thereby supporting the overall economic recovery.
• Analyze how the economic multiplier effect is expected to influence the impact of the American Rescue Plan on the broader economy.
  • The American Rescue Plan's direct payments to individuals, expanded unemployment benefits, and aid to state and local governments are intended to have a strong economic multiplier effect. As recipients spend these funds on goods and services, it generates additional rounds of spending and economic activity, leading to a larger overall increase in GDP than the initial injection of government spending. This multiplier effect is expected to amplify the stimulative impact of the American Rescue Plan, helping to drive a more robust and sustained economic recovery.

Related terms

Fiscal Policy: Fiscal policy refers to the use of government spending and taxation to influence the economy. The American Rescue Plan is a key example of expansionary fiscal policy aimed at stimulating the economy.

Automatic Stabilizers: Automatic stabilizers are government programs, such as unemployment insurance and food stamps, that help stabilize the economy during downturns by automatically increasing spending and reducing taxes without the need for new legislation.

Economic Multiplier: The economic multiplier effect refers to how an initial injection of spending can lead to a larger increase in total economic output. The American Rescue Plan's direct payments and aid are designed to have a strong multiplier effect.