Question

The government of Thailand has issued a decree to pay a stimulus check to every person who lost a job due to the COVID-19 crisis (and qualified under other criteria). What was the economic consideration under such policy? What would be the main channel for the economic effect? What would the effect be on consumption and saving if instead of such policy the government would have cut taxes?

Answer 1

Answer - The economic explaination for this step is to stimulate the demand in the economy. The government can pay these checks in the form of unemployment allowances , by which the people unemployed will be able to continue their consumption and the demand cycle in the economy will continue. This will be included as government spending and will generate the multiplier effect in the economy and will increase the GDP of the economy. The consumption in economy will rise. The level of consumption and saving will depend upon MPC and MPS.

The case of tax cut will have lesser effect. This is because the value of multiplier is reduced in the option of Tax cut. Hence it will generate lesser effect. The value of MPC is lesser than spending by government which leads to reduced value of multiplier.