An Analysis of Stimulus Effect on GDP Growth on a State Level

The 2020 COVID-19 pandemic caused an economic contraction, in which businesses saw less demand and started losing money which caused them to cut workers and raise unemployment. The CARES Act for the 2020 recession gave billions to the American people to alleviate the recession. The economic research question was whether stimulus payments from the government played a significant role in improving GDP growth at a state level and if they did why did it differ among states. In determining how a stimulus affected the GDP growth rate on a per state level, the paper used the two models of aggregate demand and supply and the Keynesian Cross Model with the concept MPC that the stimulus targeted. The three variables of EIP, PPP, and unemployment insurance were used to determine if stimulus affected GDP growth. PPP was insignificant because it was directed towards firms and not their workers. Unemployment Insurance was insignificant since it only affected those who were unemployed and not the whole population. EIP was significant because it was designed to go to everyone except the people with high incomes which would correlate to people actually consuming the stimulus. The paper utilized the state demographic variable of population density to explain why the states differed between the effect of the stimulus package. Then the paper used interaction variables to show the relationship between population density and EIP which was negative. The explanation was that a larger population density equates to a less effective EIP on GDP growth rate.