A plan to boost the economy and achieve positive effects like increased job creation, jumpstart frozen credit markets, restore consumer spending etc. through the use of fiscal policy like government spending and tax measures. This program is controversial because many economists disagree on the stimulus multiplier. The expenditure is stimulative if the multiplier is greater than 1.0 (extra government spending causes add on spending by consumers). However, many economists think that at best, the multiplier is 1.0 (simple replacement of spending that would already occur) and at worst less then 1.0 (government spending focused on less productive targets than consumers would choose).
Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University