What is the theory of supply-side?

supply-side economics, Theory that focuses on influencing the supply of labour and goods, using tax cuts and benefit cuts as incentives to work and produce goods. It was expounded by the U.S. economist Arthur Laffer (b. 1940) and implemented by Pres. Ronald Reagan in the 1980s.

What are the three pillars of supply-side theory?

In general, the supply-side theory has three pillars: tax policy, regulatory policy, and monetary policy. However, the single idea behind all three pillars is that production (i.e. the “supply” of goods and services) is most important in determining economic growth.

What is the difference between Keynesian and supply-side economics?

Supply-side economics is based on the idea that the supply of goods drives the economy. Whereas Keynesian economics tries to encourage economic growth by increasing aggregate demand, supply-side economics relies on increasing aggregate supply. It does this by focusing on taxes.

How does supply-side policy affect economic growth?

Supply-side policies will increase the sustainable rate of economic growth by increasing LRAS; this enables a higher rate of economic growth without causing inflation.

What are the two types of supply-side policies?

There are two different types of supply-side policies: market-based and interventionist. Free market supply-side policies are policies that encourage competition, market reform, and create incentives. Examples of free-market policies are privatisation, deregulation, and trade liberalisation.

What is the opposite of supply-side economics?

In supply-side economics, the goal is to provide consumers with more products and service options to purchase by encouraging businesses to spend money on production and research. In contrast, demand-side economics focuses on helping consumers maximize their income by reducing taxes to spend more on goods and services.

How do supply-side policies increase economic growth?

Supply-side economics holds that increasing the supply of goods translates to economic growth for a country. In supply-side fiscal policy, practitioners often focus on cutting taxes, lowering borrowing rates, and deregulating industries to foster increased production.