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The hope, though, was that the multiplier effect would take hold. If consumers spent more, companies would be more profitable. If companies were more profitable, they would invest more, creating more jobs. With more jobs, consumers would spend even more. In this way, the government hoped for a multiplier effect with their stimulus package. However, by the time the checks were issued, fuel prices were at their highest, consumer confidence was diminishing and most leading indicators pointed to the situation getting worse before it got better. As a result, the multiplier effect did not take hold. Ultimately, the multiplier effect only works if consumers and businesses make a conscious decision to spend. In times of diminished confidence, such decisions do not occur as much. Thus, the multiplier effect is not strong enough during times of low confidence. Certainly, it is not strong enough to reverse the business cycle, which was the laws overall intent

Works Cited:

Pender, Kathleen. (2008). How Tax Rebates Work in Stimulus Package. SF Gate. Retrieved March 6, 2009 from http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/02/12/BUOAV0BJP.DTL

Herships, Sally. (2009). Decoder: The Multiplier Effect. American Public Media. Retrieved March 6, 2009 from http://marketplace.publicradio.org/display/web/2009/02/06/mmdecodermultiplier/

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