Economic stimulus refers to monetary and fiscal policies that are implemented by governments in order to boost the economy. These policies may include deficit spending and lowering taxes. These policies can be used to help combat a recession or slowdown by encouraging private-sector growth.
Monetary stimulus, which is most often carried out by central banks, usually involves lowering interest rates so that it becomes cheaper to borrow money. This encourages people to spend more money, which can stimulate the economy. Fiscal stimulus, on the other hand, is a more direct government effort. For example, the government may offer tax credits or lowered payroll taxes as a way to spur consumer spending. This can help businesses, which then hire more workers and produce more goods. This creates a virtuous cycle of spending, which can then help the economy grow and avoid a recession or slowdown.
However, some economists are skeptical of economic stimulus efforts because they may not work. For example, they might not work if consumers don’t actually spend the extra money they are given by the government. Also, deficit-funded spending can cause higher borrowing costs, which would make it harder for businesses to obtain financing and increase their debt burdens.
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