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Supply Side Economics

Supply Side Economics. Does this really work?. What is the purpose Of Income Taxes?. Supply-Side Economics. Orthodox macro theory consists of demand-oriented theories they failed to explain stagflation (late 1970s)

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Supply Side Economics

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  1. Supply Side Economics Does this really work?

  2. What is the purpose Of Income Taxes?

  3. Supply-Side Economics • Orthodox macro theory consists of demand-oriented theories • they failed to explain stagflation (late 1970s) • Supply-side economists believe the problems were high rates of taxation & heavy regulation: • Thishad reduced the incentive to work, save and invest. • What was needed was not a demand stimulus • Incentives are needed to stimulate supply. What is De-regulation?

  4. When tax rates are very high: an tax rate => tax revenues The Laffer Curve Amount of revenue Government collects is a function of tax rate.

  5. Supply-Side Policy • Goal of a supply-side policy is to shift the aggregate supply curve to the right • The supply-side toolbox has several tools: • Tax cuts to stimulate work effort, saving, and investment • Deregulation to reduce production cost/stimulate investment. • Expenditures on education training/research expands capacity to produce • Immigration policies alter the size/skill of labor force

  6. Graphing Supply Side Economics

  7. Evaluating Supply-Side Economics • Among the criticisms of supply-side economics is that it is unlikely a tax cut would substantially increase the supply of labor. • When households receive a higher after-tax wage, they might have an incentive to work more, but they may also choose to work less.

  8. Supply-Side Policy Milestones

  9. Supply-Side Policy Milestones

  10. Supply-Side Policy Milestones

  11. Supply-Side Policy Milestones

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