Economic stimulus policies have long been used as a tool to revive or boost economic activity during...
Fiscal Stimulus
Fiscal Stimulus is a government policy that involves increasing spending or cutting taxes to boost economic activity. This is typically done during economic downturns to stimulate demand, create jobs, and encourage investment.
Key components of fiscal stimulus:
- Increased government spending: This can include infrastructure projects, public services, or direct payments to individuals or businesses.
- Tax cuts: Reducing taxes for individuals or businesses can increase their disposable income, leading to increased spending.
Goals of fiscal stimulus:
- Stimulate economic growth by increasing aggregate demand.
- Reduce unemployment by creating jobs.
- Prevent or mitigate economic recessions.
Potential drawbacks of fiscal stimulus:
- Increased government debt: Excessive spending can lead to higher national debt.
- Inflation: If the economy is already operating near capacity, increased spending can lead to inflation.
- Crowding out private investment: Government spending can compete with private investment for resources.
