Reagonomics/ Supply Side Economics
Notes from 4/13/16
Reagonomics- Change in AS (not AD) which determines the level of inflation, employment rates, and economic growth
Supply side economists support policies that promote GDP growth by arguing that high marginal tax rates along with the current system of transfer payments (such as unemployment compensation or welfare programs) provide disincentives to work, invest, innovate, and undertake entrepreneurial ventures
BASICALLY- "What can you do in your work time?"
-Lower marginal tax rates induce more work and AS increases and also makes leisure more expensive and more more attractive
-Higher opportunity cost not to work
-Postpone retirement and increase hours may have lower unemployment rates
Incentives to Save and Invest
1. High marginal tax rates reduce the rewards for savings and investments
2. Consumption might increase, but investments depend on savings
3. A lower marginal tax rate encourages savings and investment
Laffer Curve
-Depicts a theoretical relationship between tax rates and government revenues
-As tax rates increase from 0, government revenues increase from 0 to some maximum level, then decline
3 Criticisms of the Laffer Curve
1. Research suggests that the impact on incentives to work, save, invest, are small
2. Tax cuts increase demand, which can fuel inflation and demand may exceed supply
3. Where the economy in actually located on the curve is hard to determine
-JaelyNoTainted
Like Jaelyn (SPACE) Not (SPACE) Tainted
Get it?
I love how you worded your post and made it extremely understandable! It'd be interesting to mention why it's called Reaganomics- because Ronald Reagan made supply side economics a household name and his economic policies were extremely similar if not identical to supply side economics.
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