Question

Assume you had been unemployed for at least six months or longer, and the U.S. economy is in recession. If you received a stimulus check in the mail from the federal government in the amount of $800, would you go out and spend the money on goods and services, or would you save the money, or perhaps use it to pay off debt? Discuss in detail how you would use the stimulus money

Answer 1

I will prefer to spend the money on goods and services rather than saving it or paying off debt. Spending the money on goods and services would help the economy achieve the intended goals. If I spend the stimulus money on goods and services, this will create a multiplier effect and increase the real GDP by a much higher amount. So, if everyone does the same as me i.e. spending the money on goods and services, the aggregate demand would be stimulated, the output would be higher, more people would be employed and income would rise for long. So, this will help the economy come out of the recession through the multiplier effect.