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The Economics of “Stimulus Spending”

First of all, what is the definition of a recession? A recession is defined as two quarters of negative growth, or decline, in economic activity.

When you have an economic decline, or slow down, which is a pull back of spending by consumers, which makes-up 70% of GDP, and a pull back of spending by the private sector, which makes-up 15% of GDP, then the only remaining sector, the government or public sector, which makes-up 15% of GDP, that can spend to stimulate GDP growth.

Thus, we are talking about "stimulus spending" to stimulate growth in the overall economy. Without this kind of Keynesian, government stimulus spending recessions would be longer and deeper.

Once growth in the economy returns, then there is no further need for stimulus spending because the consumer sector and private sector are growing again, and their spending once again returns the economy to positive grown. This explanation is for those who may not understand the logic, and common economic sense of "stimulus spending".

Author - Warren Thompson, Jr.