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Helicopter money examples 

Helicopter money

Helicopter money is the widespread injection of cash into the consumer base. First used by economist Milton Friedman in 1969 to describe the effects of monetary expansion on an economy, it was adopted as an alternative monetary stimulus policy to quantitative easing.  

In order to define helicopter money, we need to consider its impact on inflation. Most people are familiar with inflation - a general increase in prices and fall in the purchasing value of money. While hyperinflation is to be avoided, a manageable level of inflation encourages consumers to purchase goods sooner rather than later to avoid higher prices. 

Deflation is a potentially more harmful situation. It occurs when falling demand for goods causes prices to decline. This can create a snowball effect - consumers become reluctant to make purchases in the anticipation that prices will fall, decreasing demand further and increasing deflationary pressure. 

In a deflationary environment, an influx of helicopter money means that the consumer base becomes more likely to increase spending and stimulate economic growth.

Helicopter money

Helicopter money can also be referred to as a helicopter drop, in reference to the supply drops typically done during military operations. 

A recent example of an economic helicopter drop is the fiscal policy enacted by the United States government in response to the coronavirus pandemic. In addition to unprecedented quantitative easing measures undertaken by the US government in the form of government bond buybacks, cheques were issued to all American citizens earning below $99,000 for a single person and $198,000 for a couple, depending on the income reported on their most recent tax returns. By providing disposable income, the policy was intended to stimulate the economy through increased spending. 

While helicopter payments can help governments deal with severe economic shocks, they should not be used indiscriminately. Recent history suggests that they can be an effective tool to combat deflationary pressure in conjunction with quantitative easing. However, basic economic theory suggests that by simply injecting cash into the economy central banks will almost certainly trigger runaway inflation. For this reason, helicopter payments should be used as an insurance policy against deflation and only in extreme circumstances.

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