What Is an Economic Stimulus?
An economic stimulus is the use of fiscal policy to support an economy in a recession. The increased government spending or tax measures are offered to citizens as a way to try to revive the suffering economy because the consistent decline in income causes less consumption, which leads to higher rates of unemployment.
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Function
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The government has two options to get the funding for an economic stimulus: raise taxes or borrow the money. The government payouts are intended to be spent rather than saved to boost the economy.
History
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Economic stimuli have been used throughout the history of the United States: most notably during the Great Depression and in recent years.
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Great Depression
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On Oct. 29, 1929, the Great Depression started with the stock market crash referred to as Black Tuesday; Franklin D. Roosevelt implemented a variety of economic stimulus packages aimed at providing assistance to the poor and decreasing unemployment throughout his presidency.
Recent History
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The U.S. government has passed $168 billion and $819 billion economic stimulus plans in February 2008 and January 2009 respectively.
Warning
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Economic stimuli help the economy in the immediate future, but many economic experts believe government payouts sometimes have counterproductive characteristics: The government can fall deeper into debt, and increased spending usually causes personal savings and investments to decrease.
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