Stimulus (economics)

Monetary stimulus refers to lowering interest rates, quantitative easing, or other ways of increasing the amount of money or credit.

Milton Friedman argued that the Great Depression was caused by the fact that the Federal Reserve did not counteract the sudden reduction of money stock and velocity.

Ben Bernanke argued, instead, that the problem was lack of credit, not lack of money, and hence, during the Great Recession, the Federal Reserve led by Bernanke provided additional credit, not additional liquidity (money), to stimulate the economy back on course.

[3] President of the Federal Reserve Bank of Richmond, Jeffrey M. Lacker, with Renee Haltom, has criticized Bernanke's solution because "it encourages excessive risk-taking and contributes to financial instability.

However, the government can also take externalities into account, such as how new roads or railways benefit users who do not pay for them, and choose investments that are even more beneficial although not profitable.