Stimulus package: What is a stimulus package
The stimulus package is a package of economic measures that the government implements to stimulate a weak economy. The objective of the package is to strengthen the economy by promoting employment and spending and to prevent or reverse the recession. The theory behind the utility of the stimulus package lies in Keynes’s economics, which argues that the recession cannot be self-sufficient, so government intervention can mitigate the effects of the recession. For example, an incentive or increased government spending can offset private spending, which stimulates aggregate demand and reduces output gaps in the economy.
A stimulus package of government spending and raising taxes and interest rates is a concerted effort to boost the economy and pull it out of recession or depression.
The aim is to drive aggregate demand through increased employment, consumer spending and investment.
The U.S. Senate approved various stimulus packages to help reduce the effects of the Covid-19 epidemic in 2020 and 2021.
How the stimulus package works
In times of economic downturn, incentive packages usually include a variety of incentives and tax breaks offered by the government to help pull the country out of recession or prevent an economic downturn. The stimulus package can be in the form of financial stimulus or financial stimulus or quantitative easing.
Do stimulus packages increase inflation?
Economists differ on whether stimulus packages cause inflation and under what circumstances. Some have argued that stimulus packages are essentially inflationary because they add money to the currency without increasing the productivity of the economy.
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