Supply Side Policy
➡️ Aggregate Demand: Aggregate demand is the total amount of goods and services demanded in the economy at a given overall price level and in a given period of time. It is the sum of consumption, investment, government spending, and net exports. Changes in aggregate demand can cause fluctuations in national income, real output, the price level, and employment.
➡️ Aggregate Supply: Aggregate supply is the total amount of goods and services that firms are willing to produce and sell in the economy at a given overall price level and in a given period of time. It is the sum of all the individual firms➡️ supply curves. Changes in aggregate supply can cause fluctuations in national income, real output, the price level, and employment.
➡️ Equilibrium: Equilibrium occurs when aggregate demand equals aggregate supply. At this point, national income, real output, the price level, and employment are all stable. If aggregate demand increases, then national income, real output, the price level, and employment will all increase. If aggregate supply decreases, then national income, real output, the price level, and employment will all decrease.
What is supply side policy and how does it work?
Supply side policy is a set of economic policies aimed at increasing the productive capacity of an economy by promoting investment, innovation, and entrepreneurship. It works by reducing barriers to entry, such as taxes and regulations, and by providing incentives for businesses to invest in new technologies and expand their operations. This, in turn, leads to increased production, job creation, and economic growth.
What are the advantages and disadvantages of supply side policy?
The advantages of supply side policy include increased economic growth, job creation, and higher productivity. It also encourages innovation and entrepreneurship, which can lead to new products and services. However, the disadvantages include the potential for increased income inequality, as the benefits of supply side policy may not be evenly distributed. Additionally, it may take time for the effects of supply side policy to be felt, and there is a risk that it may not work as intended.
How does supply side policy differ from demand side policy?
Supply side policy focuses on increasing the productive capacity of an economy by promoting investment and innovation, while demand side policy focuses on increasing consumer spending to stimulate economic growth. Supply side policy aims to increase the supply of goods and services, while demand side policy aims to increase the demand for them. Both policies can be used together to achieve economic growth, but they have different approaches and priorities.