Published Oct 25, 2023 Helicopter Drop, also known as Helicopter Money, is a monetary policy tool in which a central bank injects a large amount of money directly into the economy, typically by giving it to the public or funding government spending. The term “helicopter drop” comes from the idea of a helicopter dropping money from the sky, symbolizing a sudden influx of money into the economy. To illustrate the concept of a helicopter drop, let’s imagine a scenario where the economy is experiencing a severe recession with high unemployment and low inflation. The central bank decides to implement a helicopter drop in order to stimulate economic activity and increase inflation. The central bank creates new money and distributes it to the public by depositing funds directly into individuals’ bank accounts or issuing them as stimulus checks. The idea behind this approach is that individuals will have more money to spend, leading to increased consumption and demand in the economy. As a result, businesses may hire more workers and invest in production, which can help reduce unemployment and boost economic growth. Additionally, the central bank could also opt to provide funding to the government. This could be done by purchasing government bonds or directly financing government projects. By injecting money into the government’s coffers, it can stimulate public spending on infrastructure, healthcare, education, or other sectors, creating additional economic activity and job opportunities. Helicopter drops are considered an unconventional monetary policy tool that can be used in extreme economic situations, such as deep recessions or deflationary periods. The main objective is to stimulate spending and increase aggregate demand in order to jumpstart economic growth and prevent or mitigate the negative impacts of a recession. However, helicopter drops can have potential downsides and risks. If not implemented carefully, they can lead to high inflation, devalued currency, and loss of confidence in the economy. It is important for policymakers to consider the potential consequences and carefully manage the timing and scale of helicopter drop measures to strike a balance between stimulating the economy and maintaining stability. Overall, helicopter drop is a tool that can provide a significant injection of liquidity into an economy, potentially helping to combat economic downturns and promote growth. However, it should be used judiciously and with careful consideration of its potential risks and long-term effects on the economy.Definition of Helicopter Drop (Helicopter Money)
Example
Why Helicopter Drop Matters
Economics