<blockquote>
<p>Where does the money come from to pay Americans such a generous stimulus?</p>
</blockquote>
<p>As any government US raises its money through combination of taxes,  debt and monetary financing. In economics terms government budget constraint (in static form) is given by:</p>
<p><span class="math-container">$$G-T= \beta+ \theta \implies G = T+\beta+\theta$$</span></p>
<p>where <span class="math-container">$G$</span> is government spending, <span class="math-container">$T$</span> is the net tax revenue after transfers and interest payments, <span class="math-container">$\theta$</span> is government financing by high powered money and <span class="math-container">$\beta$</span> is government financing by bonds/debt (see for example <a href="http://www.princeton.edu/%7Eerp/ERParchives/archivepdfs/M144.pdf" rel="nofollow noreferrer">Blinder &amp; Solow, 1973</a>; <a href="https://www.journals.uchicago.edu/doi/abs/10.1086/259381?journalCode=jpe" rel="nofollow noreferrer">Christ, 1968</a>; <a href="https://willembuiter.com/CFDP0384.pdf" rel="nofollow noreferrer">Tobin &amp; Buiter 1976</a>). In the specific case of US you can find information on these variables in the <a href="https://www.govinfo.gov/app/collection/budget/2021" rel="nofollow noreferrer">US official budget</a>.</p>
<blockquote>
<p>What is the economic benefit?</p>
</blockquote>
<p>The benefit is that it stimulates aggregate demand. Recessions usually occur  due to either fall in aggregate demand or sometimes due to fall in aggregate supply (see Blanchard et al. Macroeconomics: A European Perspective). In case of fall in aggregate demand economy might be stimulated and restored more quickly by either fiscal or monetary stimulus.</p>
<p>Covid-19 crisis is  caused by a lack of both aggregate demand and supply but more of the former. For example, <a href="https://www.federalreserve.gov/econres/feds/files/2020049pap.pdf" rel="nofollow noreferrer">Bekaert et al (2020)</a> estimated that the fall in output in the 2020:Q1:</p>
<blockquote>
<p>-4.3 percent is due to an aggregate demand shock and -2.3 percent is due to an aggregate supply shock</p>
</blockquote>
<p>Consequently, in such situation use of government stimulus should be justified.</p>
<p>Furthermore, <a href="https://www.forbes.com/advisor/personal-finance/who-is-eligible-for-the-600-stimulus-check/#:%7E:text=Individuals%20earning%20under%20%2475%2C000%20and,qualify%20for%20a%20%241%2C200%20payment." rel="nofollow noreferrer">high income households</a> are restricted from the direct government stimulus so it represents redistribution from the excluded high income households to the included households that have lower income. In fact, this is the point. Poorer individuals/household have empirically higher marginal propensity to consume so their spending stimulates economy more during recession (see again above cited Blanchard et al.).</p>

CC BY-SA 4.0
2021-02-09T11:36:23.010Z
2021-02-09T11:36:23.010Z
1muflon1
<p>Where does the money come from to pay Americans such a generous stimulus? What is the economic benefit? Is there something that is not visible to everyone else? If we give all this money to everybody does that just pay to keep the market going and all the rich elite as they call it just stay afloat? How does this machine work? Because it seems like paying people money to spend money just evens everything out and nobody gains and nobody loses.</p>

CC BY-SA 4.0
2021-02-09T07:57:15.593Z
[Keynesian economics](https://en.wikipedia.org/wiki/Keynesian_economics) is a good place to start...
Amaan M
<macroeconomics><government>
Government stimulus
Guest80
# Government stimulus

(Asked by: username_0 on 2021-02-09)

Where does the money come from to pay Americans such a generous stimulus? What is the economic benefit? Is there something that is not visible to everyone else? If we give all this money to everybody does that just pay to keep the market going and all the rich elite as they call it just stay afloat? How does this machine work? Because it seems like paying people money to spend money just evens everything out and nobody gains and nobody loses.

**Tags:** macroeconomics, government
> **Comments:**
> **username_1**: [Keynesian economics](https://en.wikipedia.org/wiki/Keynesian_economics) is a good place to start...  

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## 1 answers

### Answer by username_2 on 2021-02-09. Score: 2

> Where does the money come from to pay Americans such a generous stimulus?

As any government US raises its money through combination of taxes, debt and monetary financing. In economics terms government budget constraint (in static form) is given by:

$$G-T= \beta+ \theta \implies G = T+\beta+\theta$$

where $G$ is government spending, $T$ is the net tax revenue after transfers and interest payments, $\theta$ is government financing by high powered money and $\beta$ is government financing by bonds/debt (see for example [Blinder & Solow, 1973](http://www.princeton.edu/%7Eerp/ERParchives/archivepdfs/M144.pdf); [Christ, 1968](https://www.journals.uchicago.edu/doi/abs/10.1086/259381?journalCode=jpe); [Tobin & Buiter 1976](https://willembuiter.com/CFDP0384.pdf)). In the specific case of US you can find information on these variables in the [US official budget](https://www.govinfo.gov/app/collection/budget/2021).

> What is the economic benefit?

The benefit is that it stimulates aggregate demand. Recessions usually occur due to either fall in aggregate demand or sometimes due to fall in aggregate supply (see Blanchard et al. Macroeconomics: A European Perspective). In case of fall in aggregate demand economy might be stimulated and restored more quickly by either fiscal or monetary stimulus.

Covid-19 crisis is caused by a lack of both aggregate demand and supply but more of the former. For example, [Bekaert et al (2020)](https://www.federalreserve.gov/econres/feds/files/2020049pap.pdf) estimated that the fall in output in the 2020:Q1:

> -4.3 percent is due to an aggregate demand shock and -2.3 percent is due to an aggregate supply shock

Consequently, in such situation use of government stimulus should be justified.

Furthermore, [high income households](https://www.forbes.com/advisor/personal-finance/who-is-eligible-for-the-600-stimulus-check/#:%7E:text=Individuals%20earning%20under%20%2475%2C000%20and,qualify%20for%20a%20%241%2C200%20payment.) are restricted from the direct government stimulus so it represents redistribution from the excluded high income households to the included households that have lower income. In fact, this is the point. Poorer individuals/household have empirically higher marginal propensity to consume so their spending stimulates economy more during recession (see again above cited Blanchard et al.).


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