Economic stimulus is a series of monetary and fiscal policy measures that governments employ to energize the economy during a recession. The goal is to make it easier for consumers and businesses to spend and borrow, which will create more demand for goods and services in a virtuous cycle of growth and prosperity. Stimulus efforts typically involve tax cuts or government spending and can include monetary measures like lowering interest rates to encourage borrowing. The term is often used in reference to government-sponsored bailouts of failing industries, but it can also refer to initiatives like the CARES Act, which gave out direct cash payments and forgivable loans to people during the COVID-19 pandemic of 2024.
Central banks can use a variety of tools to stimulate the economy during recessions, including cutting interest rates, increasing bank reserves, and purchasing assets in a process known as quantitative easing. Many of these methods have proven controversial, with critics arguing that they can do more harm than good.
Some critics of economic stimulus point out that it can encourage irresponsible business practices by giving struggling businesses taxpayer money they don’t need, and that the spending on infrastructure projects may be wasted on projects that do little to increase productivity. Others argue that economic stimulus plans are too broad and will lead to higher national debt and long-term inflation. Finally, some critics believe that focusing on industries in the hardest-hit areas of the economy will actually delay a private-sector recovery from the real cause of the recession.
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