Economic stimulus refers to government infusions of liquidity that aim to spur economic activity when a country experiences a downturn. These infusions can include tax breaks, interest rate cuts, and government spending. They can be targeted to a wide range of individuals and businesses, including large and small business, industries, individual families, gig workers (such as independent contractors or those working for companies like Lyft), and even the healthcare system.
The purpose of a stimulus is to raise overall demand, which will, in turn, raise economic output. Economic stimulus policies should be timely, temporary, and well-targeted to maximize their impact on output with minimal long-term costs.
Many of the issues that cause recessions are related to a lack of demand. Factories go idle, and employees sit idle, because there’s no one to buy the goods they produce or pay their wages. If they had customers, those factories would spring back into operation and workers could go back to work. This is the theory behind Keynesian economics and other economic stimulius strategies.
Monetary, or fiscal, stimulus involves the government using tools like cutting interest rates and quantitative easing (QE) to increase money in the economy. This makes it easier for people to spend their incomes. A cut in taxes can also encourage individuals to spend more, which gets their money circulating and stimulates the economy.
About the Author
