Economic stimulus is a set of government policies that are designed to improve or boost an economy. These are often in the form of legislative measures such as tax reductions or spending increases. They are usually introduced in response to a slowdown or crisis such as a recession.
The goal of these is to stimulate the economy so that it will start to grow again. Governments may also introduce them in the hope that they will prevent a depression or a recession occurring at all. They can be aimed at businesses or individuals. They can involve money or not and they can be specific to a certain area of the economy such as infrastructure, health or housing.
For example, lowering taxes can help stimulate an economy because they free up more income for people to spend. Government spending can also have the same effect as it is another source of money in circulation. Lowering interest rates can also increase the amount of money in circulation as people take on more debt to invest or spend. This can have indirect effects on the economy too because it can strengthen the dollar resulting in higher prices for imported goods and commodities.
However, many economists do not believe that a fiscal policy will have the same effect as a monetary one because the economy is made up of many parts and events in some areas can have a knock-on effect on others. For instance, if businesses are losing customers, they will lay off employees and cut costs which reduces demand. This can then cause a downward spiral of demand, production and employment.
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