stimulus check

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Stimulus Check: Overview, Pros And Cons, Effect On Pandemic

Economy 4 Mins Read February 6, 2021 Posted by Sourav Ganguly

What Is The Stimulus Check?

A stimulus check is a check that the United States Government sends to taxpayers. With the intention of stimulating the economy, the government provides consumers with some spending money. When this money is spent by the consumers, consumption is boosted, and revenues are driven by manufacturers and retailers. As a result, it spurs the economy. 

A larger federal stimulus package, which is designed in order to support the economy, can also include a stimulus check, just like the stimulus payments, which were a part of CARES or the Coronavirus Aid, Relief, and Economic Security Act in 2020.

Things to know about Stimulus Check

Things to know about Stimulus Check

  • In order to spur the economy and boost the spending power of taxpayers, the U.S. Government sent this check, called a stimulus check, to them. 
  • The taxpayers either receive mail or the same equivalent tax credit has been applied when they are filing tax as the stimulus check. 
  • In 2008, during the great recession, stimulus checks were used.
  • In order to handle the economic hardships caused as a result of the coronavirus pandemic, the American stimulus payments were sent to relief as per the bit enacted by the United States government. This economic incident took place in March 2020.

Explained Stimulus Check

On several occasions, the U.S. government sends the stimulus check to the taxpayers. On the basis of the filing status of a taxpayer, the check amount varies. The joint consumer receives double that those who are filing singly. There are also some instances where the stimulus check is automatically applied to the outstanding balance of unpaid back taxes. 

As per research posted on NBER or the National Bureau of Economic Research, a difference in overall spending patterns of consumers is noticed due to the delivery of the fiscal stimulus. An increase in consumer spending activity was noticed as a result of sending checks for fiscal stimulus. But the implementation of equal tax credits equal to the same amount of money offered in a stimulus check. 

Impact of Stimulus Checks

Impact of Stimulus Checks

From the earlier discussion, it is clear that stimulus checks are forms of decreasing taxes. In order to boost the overall consumption and to save among consumers and businesses, the Government lowers the taxes. 

During the time of any recession, stimulus checks encourage consumers to spend or invest more amount with their disposable income at a higher level. The algorithm is simple. With higher consumption, the demand will increase, which asks for more productivity. As a result, the business will employ more workers or laborers. As a result of higher labor demand, the wages will also increase. 

Stimulus Check Effect On Pandemic In 2020

In March 2020, the U.S. government rubber-stamped a bill, which sends the Americans stimulus payments in order to offer relief funds for economic hardships. Coronavirus has a significant effect on economic standards.

This is called the CARES Act or Coronavirus Aids, Relief and t Act. For every adult, a tax rebate of $1,200 and per qualifying child, a tax rebate of $500 is specified in the CARES Act. The amount of the rebate also phases out for per year incomes of $75,000 for individuals, and for joint filers, the limit is $150,000. 

Another Example of Stimulus Checks

After the financial crisis of 2008, when the U.S. economy had entered a severe recession, stimulus checks were used. Then the Obama administration was calculated that sending stimulus checks would avert the unemployment rate from going below 8%. 

During the administration of that time, President George W. Bush, Economic Stimulus Act of 2008 included the payments. Those who are having an income of $3,000 from or with a combination of Veterans Affairs benefits, Social Security benefits, earned income, and railroad retirement, will be sent the checks. Here are the check amounts

  • Eligible individual person: from $300 to $600
  • Married taxpayers, who file joint returns: from $600 to $1,200
  • With eligible children: $300 additional for each child

Cons Of Stimulus Check

stimulus check

Critics state that the stimulus simply shifted economic activities that would happen anyway and added some$1 trillion to the fall. As per a  Mercatus study, the employment rates rose above even after implementing the stimulus. The ineffectiveness of stimulus checks during the recession of 2008 is proof of the statement. 

The study also shows that the median value of unemployment had reached 25.5 weeks in the year 2010 after calculating the average of 7.2 weeks from the year 1967 to 2008. Paul Krugman, the American economist, also stated that the stimulus amount was so small that it could not be effective. 

Effectiveness of Stimulus Checks

stimulus check

In the year 2008, different studies found that stimulus checks had effectively increased the GDP and reduced the unemployment rate in conjunction with monetary policy measures and other fiscals. Though it is a little challenging to say how much of the overall positive effect can be assigned to the stimulus checks themselves. 

It is true that the stimulus checks are implemented with the assumption or intention that they will be used in order to encourage consumers to spend more. However, it might not be the case all the time, as consumers can choose to save money.

The covid 19 U.S. stimulus check was a part of the $2.2 trillion economic relief bill. It can cause a risk for the government that already has an unstable economy or a high level of debt. 

After all, no one can guarantee that the stimulus checks will effectively improve the GDP by reducing unemployment. But it has the potential to do so. The consumer also plays a vital role here. At the end of everything, the stimulus checks were being spent by the consumers. 

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