A combination of monetary and fiscal policies, Economic stimulus is designed to jump-start a country’s economy. They’re typically used to fight recessions but can also be implemented during periods of weakness.
The concept behind these government-led measures is that they stimulate the economy by directly helping those most in need of a boost. This can include the small business sector, those affected by natural disasters and low income earners. The government will provide cash, subsidies or other benefits to these groups to try and create a virtuous circle in which people spend money which results in companies creating jobs. This is an approach to the economy popularized by economist John Maynard Keynes and used during the Great Depression of the 1930s.
As a result of these efforts, the economy will see a rise in demand which helps businesses to hire more workers and create even more goods and services. It’s important that these efforts are targeted in the most effective way possible. They must be both timely and temporary to have the greatest impact at a lower long-term cost. In addition, they must be focused on critical sectors of the economy to avoid triggering inflation.
Many economists believe that permanent tax cuts or spending increases are counterproductive. These tend to reduce national saving and increase foreign borrowing which has a negative effect on future national incomes and growth. They can also lead to higher interest rates which limit investment and weaken net exports by pushing up the value of the currency.