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Helicopter Money

Helicopter money refers to an unconventional monetary policy where central banks directly distribute large sums of money to the public or the government to stimulate economic growth. The term was popularized by economist Milton Friedman, who used the metaphor of dropping money from a helicopter to illustrate the idea. Helicopter money is considered an extreme form of stimulus, used during times of severe economic downturns or deflationary pressures. Unlike traditional monetary policies, it bypasses the banking system to inject liquidity directly into the economy.

Example

During a severe recession, a government might use helicopter money by providing every citizen with a direct cash payment to boost consumer spending and revive the economy.

Key points

• Unconventional monetary policy involving direct distribution of money to the public or government.

• Used to stimulate economic growth in times of extreme downturn or deflation.

• Bypasses the traditional banking system to inject liquidity directly into the economy.

Quick Answers to Curious Questions

Helicopter money is used during severe economic downturns or deflationary periods when traditional monetary policies are ineffective at boosting demand.

Risks include inflation if too much money is injected into the economy and the potential devaluation of the currency due to increased money supply.

Helicopter money involves direct cash transfers to the public or government, while QE involves central banks purchasing assets from financial institutions to increase liquidity.