A:

Stimulus checks are payments given to individuals by the government based on taxes paid in the previous year. The hope is that the recipients of these checks will increase spending, thus stimulating the economy.

How do stimulus checks work?
Stimulus checks are a short-term solution primarily used in a lagging economy. By infusing money into an economy, the government is attempting to increase the spending habits of individuals and boost general consumer confidence. Ideally, consumers will go out and spend the money, which will help businesses maintain adequate cash flows to pay their bills and employ their workers. If the stimulus checks are placed into a savings account, the banks will be able to lend out more money to more spenders. If the checks are used to pay debts, they could reduce loan defaults. (To read more on consumer confidence and how it affects the economy, read Consumer Confidence: A Killer Statistic.)

A slow economy will have less flow of capital. This means fewer people spend, fewer businesses get money and, therefore, businesses cannot pay wages. Some businesses might even lay off workers. This slows down the economy. A healthier economy will have a higher flow of capital; residents spend more and businesses make money. These businesses employ more people who spend more, creating a healthy economic cycle.

RELATED FAQS
  1. Do stimulus checks work?

    In theory, stimulus checks are intended to increase the amount of capital in the economy. By giving back tax dollars in the ... Read Answer >>
  2. When do checks expire?

    There is a legal grace period for cashing checks, but depositors and issuers may risk overdraft fees if a late check is presented ... Read Answer >>
  3. What's the difference between monetary policy and fiscal policy?

    Learn how monetary policy refers to bank actions to control interest rates and money supply, while fiscal policy refers to ... Read Answer >>
  4. How do changes in interest rates affect the spending habits in the economy?

    Examine the factors that typically determine how consumers react to interest rate changes in terms of increasing their levels ... Read Answer >>
  5. How long does it take a check to clear?

    It usually takes two days for a check to clear, but in some cases it may take longer. Discover how banks treat large deposits ... Read Answer >>
  6. What are some different kinds of expansionary policy?

    Learn the most popular types of expansionary policy used by the federal government and the Federal Reserve to increase the ... Read Answer >>
Related Articles
  1. Personal Finance

    Explaining Checking Accounts

    A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals.
  2. Insights

    What Is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  3. Personal Finance

    Top 5 Reasons Banks Won't Cash Your Check

    Learn the top reasons that a bank won't cash your check, and find out what steps you can take to prevent those scenarios from happening.
  4. Financial Advisor

    Will Consumer Spending Save 2015?

    Consumer spending is considered an important number (and it is), but a savvy investor will always look at "why" rather than just "what." You should too.
  5. Financial Advisor

    Have Stocks Seen the Bottom Yet?

    The market has been turbulent as of late. But have stocks hit bottom?
  6. Trading

    Consumer Confidence: A Killer Statistic

    The consumer confidence is key to any market economy, so investors need to learn the measures and how to analyze them.
  7. Personal Finance

    What is a Bounced Check?

    Bounced check is a slang term to describe a check that cannot be processed because its writer has insufficient funds.
  8. Investing

    What The U.S. Needs To Do To Avoid Austerity Measures

    Here's a look at some of the methods the federal government is using to help economic recovery in the U.S.
  9. Insights

    Understanding The Consumer Confidence Index

    We look at this closely watched economic indicator to see what it means and how it's calculated.
  10. Trading

    The 6 Signs Of An Economic Recovery

    For all the talk of whether the economy is recovering or sinking, what should a recovery actually look like?
RELATED TERMS
  1. Stimulus Check

    A check sent to a taxpayer by the U.S. government. Stimulus checks ...
  2. Economic Stimulus

    Attempts by governments or government agencies to financially ...
  3. Check

    A written, dated and signed instrument that contains an unconditional ...
  4. Certified Check

    A type of check where the issuing bank guarantees the recipient ...
  5. Float Time

    The amount of time between when an individual writes and submits ...
  6. Stimulus Package

    A package of economic measures put together by the government ...
Hot Definitions
  1. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  2. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such ...
  3. Death Taxes

    Taxes imposed by the federal and/or state government on someone's estate upon their death. These taxes are levied on the ...
  4. Retained Earnings

    Retained earnings is the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested ...
  5. Demand Elasticity

    In economics, the demand elasticity refers to how sensitive the demand for a good is to changes in other economic variables. ...
  6. Dark Pool

    A dark pool is a private financial forum or exchange for trading securities.
Trading Center