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What Is Stimulus Money?

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  • Written By: Cindy Quarters
  • Edited By: S. Pike
  • Last Modified Date: 09 December 2016
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A stimulus package is a collection of projects and regulations designed to help to boost the economy. Although the term stimulus package can be used generically, it most commonly refers to a vast economic plan, approved in early 2009, meant to help boost the US economy, providing jobs, helping people to keep their homes, and providing unemployed people access to health care and extended unemployment benefits. Part of this package involves direct spending to create jobs and purchase health care services, and part involves tax breaks. The money used to do this is referred to as “stimulus money.” The tax rebate checks that many Americans received in 2008 were paid for with stimulus money.

The reason behind the creation of the stimulus package, called the American Recovery and Reinvestment Act of 2009, was the serious downturn in the American economy. Banks lent money on property with little or no down payment, and when people couldn’t afford to make all the payments, the houses were foreclosed and returned to the banks. The values of homes also dropped as a result of so many of them being held by the banks, and the banks ended up holding homes that were not worth as much as was owed on them. This seriously affected the banks’ cash flow and reduced the availability of loan money, which caused further problems with the economy.

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The government stepped in to try to prevent the situation from getting as bad as the Great Depression, which lasted for over a decade. By providing stimulus money to individuals, the government helped people to continue to live in their homes while looking for jobs. The stimulus money provided to businesses was intended to help them to invest money in capital assets such as building new homes and offices. This was expected to result in new construction, which in turn provides jobs and eventually alleviates the need for unemployment payments, government-managed health care, and other direct benefits.

In theory, the jobs created by programs paid for with stimulus money should ultimately help Americans earn enough money to make a living and to have some disposable income left over. When people are not worried about keeping their homes and how they are going to feed their families, they are more inclined to spend money on extras, such as televisions, cars, game systems and vacations. This extra spending in turn can lead to more jobs, which again increases how much money people have available to spend. By setting forth in the stimulus package how the stimulus money must be spent, the government tried to stem, then reverse, the downward trend of lost jobs and foreclosed homes, with the goal of returning to a flourishing economy.

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