Tuesday, 24 January 2017

Economic Stimulus Does Not Stimulate Economic Growth

By Atle Willems,

Economic stimulus generally refers to the use of monetary and fiscal policies implemented centrally by a government or government agencies to spur or “kick-start” economic growth in a struggling economy. Stimulus is usually called for following a period of inflationary growth that necessarily must come to an end.

The central bank, whose policies are partly founded on the economic doctrine that interest rates should be raised during good times and lowered during bad times, controls the monetary element of the “stimulus.” Furthermore, the thinking goes, money supply growth therefore needs to be slowed during good times and managed up during bad times. Why? Because lowering interest rates and increasing the money supply growth rate fuel demand and economic growth while rising interest rates and decreasing money supply growth achieve the opposite according to this line of thinking. Through manipulating the money supply and interest rates, a central bank is able to manipulate the economy and smooth out booms and busts. At least this is the claim made by central banks and the institutions and scholars that support such monetary policies and interventions.

Continue reading the article on TalkMarkets.

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