Bell Work What do you think might be some of the differences between Demand-Side Policies and Supply Side Policies?

Clarification Multiplier Accelerator A change in investment spending can cause a change in overall spending Accelerator A change in overall spending can cause a change in investment spending

Quiz Link: https://goo.gl/HX938H

Today I will Compare and contrast supply-side and demand-side policies Discuss the limitations of supply-side policies Compare the aggregate supply curve for the economy to the supply curves of individual producers

Key Vocabulary Supply-side policies Laffer curve deregulation

Supply-Side Policies Chapter 15, Lesson 2

Goals of Supply-Side Policies Origins of Supply-Side Economics 1970s Stagflation High unemployment High inflation Demand-side policies didn’t seem to be able to handle the crisis Ronald Reagan offered a solution that shifted focus to producers (supply side)

Goals of Supply-Side Policies A Smaller Role for Government Larger government dampens production and slows growth Need to cut the number of agencies Cut federal spending Congress was unwilling to decrease the number of agencies Reagan cut tax rates to increase deficits and force agency reductions

Goals of Supply-Side Policies Lower Federal Taxes Lower tax rates allow individuals to keep more of their money Keeping more money will encourage people to work harder People will be able to spend more and increase demand

Goals of Supply-Side Policies The Laffer Curve Economic theory that a lower tax rate would produce higher tax revenues because of increase economic activity Used by Reagan to justify the reduces tax rates While the decreased tax rate did stimulate some economic growth, increased revenues never happened and deficits grew to record levels

Goals of Supply-Side Policies Deregulation Relaxing or removing government regulations Believe that competition in a free market will keep firms in line Consumers will avoid firms that act unfairly and force them to correct their ways or go out of business Since the 1980s there has been massive deregulation Airlines Banking Telecommunications Trucking Deregulation of Savings and Loans in the late 1980s led to massive S&L failures in the 1990s

Impact and Limitations of Supply Side Policies President Reagan’s Budget Priorities Cut domestic programs by $39 billion in just his first year in office Increased national defense spending Overall increased government spending by 2.5%

Impact and Limitations of Supply Side Policies Tax Rates and Economic Growth GDP did increase for 92 months However increased military spending provided much of that record growth

Impact and Limitations of Supply Side Policies Tax Rates and Revenues Reagan tax cuts lowered revenues Clinton tax increases increased revenues Bush tax cuts lowered revenues again Tax cuts = increased revenue has been proven false

Impact and Limitations of Supply Side Policies Deregulation and Economic Growth Both demand and supply siders favor policies that Promote productivity Reduce unnecessary paperwork Stimulate the economy Supply-side Policies have made the economy less stable Tax structure became less progressive “Safety Net” programs were weakened

Impact and Limitations of Supply Side Policies Supply and Demand Siders – A Final Comparison Both demand and supply side have the same goals Increasing production Decreasing unemployment Slow, steady inflation Demand siders focus on policies that stimulate demand Supply siders focus on policies that stimulate supply

Activity Create a political cartoon that illustrates one or more of the concepts related to supply side economics. You should include relevant people (Reagan, Either or both Bushes) or events (deregulation)

What are 3 differences between supply and demand side policies? Reflection What are 3 differences between supply and demand side policies? What is one similarity?