SUPPLY SIDE

ECONOMICS
Macroeconomics
◦ Supply-side economics is better known to some as
"Reaganomics," or the "trickle-down" policy espoused
by 40th U.S. President Ronald Reagan.
◦ He popularized the controversial idea that greater tax
cuts for investors and entrepreneurs provide
incentives to save and invest, and produce economic
benefits that trickle down into the overall economy.
◦ In this article, we summarize the basic theory behind
supply-side economics.
◦ Like most economic theories, supply-side economics
tries to explain both macroeconomic
phenomena and—based on these explanations—offer
policy prescriptions for stable economic growth. 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.
◦ The supply-side theory is typically held in stark contrast
to Keynesian theory which, among other facets, includes the
idea that demand can falter, so if lagging consumer demand
drags the economy into recession, the government should
intervene with fiscal and monetary stimuli.
This is the single big distinction: a pure Keynesian believes
that
consumers and their demand for goods and services are key
economic drivers,
while a supply-sider believes that producers and their
willingness to create goods
and services set the pace of economic growth.