tiger asked in Social ScienceEconomics · 1 decade ago

What is supply-side economics?

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  • 1 decade ago
    Favorite Answer

    The idea that an economy can and should be stimulated by increasing the supply of goods - that supply will create demand. It's also called "Reaganomics." The idea is to stimulate business through tax breaks, etc, and that this stimulation will both create additional supply, and will require the creation of additional jobs (in order increase supply). With more jobs, there is more demand from people who now have money from their new employment, and they can then buy the increased supply, and keep the cycle going. Basically, the other side of "priming the pump," where a government is encouraged to go into short-term deficit spending in order to create additional demand, which will cause companies to hire workers to meet the additional demand, which then stimulated the economy.

  • NC
    Lv 7
    1 decade ago

    Basically, it's supposed to work like this. You decrease tax rates, while leaving government spending unchanged. This creates a fiscal stimulus; the economy expands, more national income gets earned, tax revenues increase as well, and the AMOUNT of taxes collected remains roughly the same in spite of lower tax RATE (in other words, the tax cut pays for itself).

    In reality, the increase in tax revenue is nowhere near what supply-side economics suggests. To start with, fiscal stimulus has a long lag (at least a year, sometimes two), so cutting taxes today would lead to higher national income a year or two later. In the interim, the deficit should somehow be financed... Also, in an open economy with floating exchange rates, fiscal policy has next to no effect on the domestic economy; its primary effect is on the direction of international capital flows...

  • Anonymous
    1 decade ago

    Supply side is the opposite of demand. Think of a candy bar you demand it so you are on the demand side and you can count how many people demand a product. The supply side is the opposite a number that represents how much supply is available.

    Make sense? In a free market economy like ours here in the US s/d is always adjusting itself that is why gas prices go up and down.

  • 1 decade ago

    at what gain an item will produce dependent upon the demand

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