economicactivity
STABILIZING INCOME VS. ECONOMIC STIMULUS – what’s the difference? Understanding the difference – and their effectiveness – is key to responding to the current economic downturn BY JASON CLEMENS, NIELS VELDHUIS, MILAGROS PALACIOS
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here’s a great deal of discussion right now regarding the need for governments to “stabilize income” and “stimulate the economy.” It’s critical to understand the difference between the two if we’re going to introduce effective policy in response to the current economic downturn. Programs such as employment insurance (EI) aim to stabilize income by providing income transfers when people are laid off. The general idea behind the program, and others like it, is that by providing income
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transfers, individuals and families affected by layoffs during a recession are able to consume – purchase goods and services – at levels comparable to when they were working. Put differently, these types of income transfer programs try to “stabilize” the level of spending in the economy during difficult economic times by “stabilizing” the incomes of individuals and families. An important aspect of programs such as EI is that they automatically respond to recessions. There’s no need for government action as the program is designed to
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