Yet that would be $10700 a piece worth of debt.
Granted there is a circular flow principle, but people are prone to save money, especially in this type of economy. For example, if people know that money is scarce, they will save it and not spend it, which would mean less money would be flowing through our economy. Not only would the government’s “dishing out” of money decrease our GDP (this is only true if people save or the money otherwise does not circulate), the fact itself that people will save it and not circulate it will decrease our GDP even more.
On the other hand, if the government gives businesses money–businesses that will i>spend /i> what they are given to hopefully boost their revenue, the circular flow takes effect. That means that the businesses will hire more people and will buy resources. So not only will money be circulated by the payment of employees, the companies that supply resources will get paid and they get to pay their workers and hire more, etc etc. The households getting $ also spend because $ is then more readily available and they can afford to get that new car or whatever. All these will have an amplified effect on our GDP and thus economic standing.
What I mean by “amplified” is that this circular flow effect will result in more $ being returned to the GDP than was put in. To put into easier-to-understand terms, if the gov’t say, injects 20% more $ into the economy, the return may be 50%, totaling much more than what we used to have.
This whole thing is basically only true if the businesses spend though. If they don’t, their revenue will increase (b/c of gov’t funds), their inventory will increase (based on the things that they already produced that aren’t in demand), and they will fire workers. This trend will continue until economic equilibrium is reached, where supply = demand. Then, companies will usually begin to hire again in an effort to maximize their profits by producing a little more and economic up-rise will take its place. Either way we win, just how long it takes is what we’re worrying about.
trish_lonnie