Flashback to February 2009: The U.S. House of Representatives was debating a fiscal policy program designed to stimulate the domestic economy.

After one failed attempt, the House eventually passed and the U.S. Senate concurred on a $787 billion stimulus package.

Given the benefit of a year’s worth of hindsight, there is considerable interest as to whether this stimulus package has been effective in improving economic conditions across the country. As a macroeconomist, I would argue that it has.

Consider the conditions in February 2009: The world was in the midst of the most severe economic and financial crisis since the Great Depression. Personal consumption expenditures were falling, gross private domestic investment was declining, and unemployment was rising. In the third and fourth quarters of 2008, consumption fell by 3.5% and 3.1%, respectively. Business investment fell by 6.9% and 24.2%.

As a result, gross domestic product, the most visible measure of our nation’s output, fell by 2.7% and 5.4%, respectively.

It appeared the decline in GDP during the first quarter of 2009 might even be worse (it was at -6.4%, but we did not yet have that data), so the concerns were legitimate.

As to employment, the nation was losing jobs at an accelerating pace. As the chart shows, job losses accelerated beginning in September 2008 through February 2009.

The Federal Reserve had nearly exhausted its conventional means of stimulating the economy by lowering the federal funds rate to essentially zero. The Federal Reserve also undertook a number of actions to help provide liquidity to the financial markets and ease an extreme credit crisis that emerged in September 2008.

But the actions of the Fed were insufficient, and thus, an aggressive and stimulative fiscal policy action was needed. Now, what was this $787 billion stimulus bill supposed to accomplish? Simply put, it was designed to stimulate demand and stop the downward spiral in the economy.

Because consumer and business investment demand was falling so precipitously, this effort by government to partially offset this slack demand was a critical and timely response to a perilous situation.

Essentially one-third of the stimulus, or $250 billion, was designed for tax relief. The intent was to put more dollars into the hands of consumers, via payroll tax reductions, in an effort to stimulate discretionary spending.

The remaining two-thirds of the stimulus was designed to assist states, provide extensions to unemployment benefits, and to promote spending on “shovel-ready” infrastructure projects. The stimulus plan was designed to take place over a threeyear period, from 2009 through 2011. In fact, approximately half of the $787 billion stimulus was designed to occur in 2010, so it is entirely too early to completely answer the question as to how effective this fiscal policy program has been.

It is also important to recognize that the government took other actions to stimulate the economy, including the Cash for Clunkers and first-time homebuyers programs.

The data over the past year indicates the nadir of this Great Contraction was likely in the first quarter of 2009, and that we actually saw positive growth in GDP beginning in the third quarter (+2.2%) and accelerating into the fourth quarter (+5.7%) of 2009.

Thus, the $787 billion stimulus program, in conjunction with the other incentive programs introduced in 2009, has arrested the downward spiral and generated some upward momentum in U.S. economic activity.

Agee is a professor of economics at Oklahoma City University.