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Economic stimulus 2 of 2 Government spending

Someone has to spend big time at this stage, and that would be the government. Government spending at times like these injects a big volume of money that would re-ignite the furnaces of the economy and it starts with you. Governments have several ways to inject cash into people’s pockets. One indirect way would be to cut taxes. This obviously puts money in your pocket by paying less tax. Less tax could mean an extra $200 for you, now you have surplus money to buy that new game console.

Another way is by directly mailing you a stimulus check. The money you receive means businesses would eventually receive that money through your purchase of several grocery items or gasoline. Even if you decide not to spend it and put it on a savings account, it would not be stagnant. Banks uses your deposited money to lend others who needed it. This means banks are now $800 more liquid because of your deposit and can now make a profit from interests. The individual or business who received the loan can now start investing the money.

Government spending through public works such as building a new 300 mile an hour high speed train from New York to San Francisco creates jobs, lots of jobs. Putting money on people’s pockets by hiring them with good pay helps push the flow of money back to normal.

However, this different approach by Keynes did not impress President Roosevelt, this slowed down the recovery further. This was realized during the Second World War where government spending through the manufacture of war materials jump started the economy back into its feet.