All are well aware that due to the Covid-19 pandemic that is currently hitting, the country's economy is severely affected when many sectors suffer huge losses. The situation adversely affects the country.
On that factor, the central bank and the government need to do something to revive the economy.
We can see the government announcing the stimulus package and providing assistance to the people until the Covid-19 case is successfully resolved.
We first understand what is meant by economic stimulus. Economic stimulus is an action by the government to revitalize the activities of the domestic economic sector aimed at restoring poor economic performance.
Among the measures implemented is action from the central bank. Interest rates for loans are getting lower to encourage people to start borrowing money again. In addition, car prices are also starting to drop.
In fact, the central bank also announced the purchase of government bonds. The government will offer bonds to investors to raise large funds to cover government spending.
Whoever buys the bond, the purchase amount will be refunded after the expiration of a certain period but the investor will get a return like a monthly dividend.
The central bank buys government bonds to support the government in implementing economic programs, financial assistance to the people and so on.
For the central bank, the purchase of these bonds is like an investment because it has a return with a certain interest rate and low risk.
After the central bank has increased the purchase of bonds, the government will raise funds. Only then did the government announce economic stimulus packages, provide financial assistance, create employment opportunities so that the people regain purchasing power and at the same time control inflation in the country.
When the economy falls, inflation becomes low, so the situation is not good for the country. The country does not want inflation to be too low or too high. It is the responsibility of the central bank and the government to control the situation so that the economy is in a stable state.
By understanding this economic stimulus, we can only understand more clearly the function of fiscal and monetary policy which is very important for a country.
