Supply-side economics is the theory that explains that economic growth is caused by production. It tries to explain that both macroeconomic phenomena and based on the explanation it gives policy suggestions for stabilizing the economic growth. Several presidents of the U.S had attempted to stimulate the economy by fiscal policy. There are three pillars: tax policy, monetary policy, regulatory policy.
Supply-Side vs. Keynesian Theory
The concept of the Laffer curve helped us to formulate the supply-side theory. Direct connection between federal spending and tax receipts primarily that they substitute on a one-to-one basis. The theory claim that a loss in tax income is formed from a rise in growth thus making tax cuts are a better economic policy choice.
The supply-side and demand-side theories usually take two different approaches. The demand-side theory was brought up by John Maynard Keynes, also acknowledged as
Keynesian theory. This theory is developed on the concept that economic growth is enthused because of demand. Practitioners of the theory want to empower buyers. This can be achieved through government spending on unemployment benefits, education, and other areas that increase the spending power of individual persons. Practitioners of this theory argue that it can be more costly and more difficult to implement with less desirable results.
Three Pillars Of Supply-Side Economics
The three economic supply-side pillars are as follows
1. When the policy of tax was questioned, supply-siders urged to lower the marginal rate of tax. With the lowering of marginal income tax, the supply-siders believe that lowering the rates will make the workers prefer work over leisure.
2. When the policy of regulation was questioned, supply-siders would rely on the traditional political conservatives. The people prefer a smaller government with less intervention in the free market.
3. By financial policy, we are mentioning the Federal reserve’s ability to increase or decrease the number of dollars in circulation in the economy. This is a very controversial point.
A Keynesian theory tends to believe that fiscal policy is a vital tool for the growth of the economy & dealing with business cycles, on the other hand, a supply-sider doesn’t reflect on the fact that fiscal policy can create economic values.
Both are agreeing that the government includes a printing press, the demand side believes the printing press can help to solve economic problems. But supply-siders suppose that the authorities might be going to create only problems with the aid of the printing press by the following:
1. Creating maximum inflationary liquidness with expansionary financial policy
2. Or, not an adequate movement of trade with enough liquidity due to a tight fiscal policy.
A stern supply-sider is worried that the Federals may inadvertently stifle growth.
The supply-side economy explains the concept of increasing the supply of goods leads to economic growth. The supply-side economics focuses on tax policy, monetary policy, and regulatory policy. Supply-side economics is a very controversial topic as the Keynesian theory came into the picture. The whole problem is rotating around the economy of a country.
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