Unit 5 & 6 - Supply Side Economics

-The belief that the AS curve will determine levels of inflation, unemployment, and economic growth
-To increase the economy the AS curve will have to shift to the right which would benefit the company first.
-Supply side economists focus on marginal tax rates.

Marginal tax rates: amount paid on the last dollar earned or the additional dollar earned.
-By reducing the marginal tax rate, supply siders believe that you will encourage more people to work longer and forgo leisure time.
Lower taxes are incentives for workers to invests in our economy.

1.Supply side economists
-Supports policies that promote GDP growth by arguing that high marginal tax rate along with our current system of transfer payments provide disincentives to work, invest, innovate, and undertake entrepreneurial ventures.
-People to increase savings and therefore create lower interest rates and increase business investments.

2. Supply side economics (Raeganomics)
-Lowered the marginal tax rate to get the U.S not in a recession ---> Deficit

Laffer curve: it is a trade off between tax rates and government revenue
-It is used to support the supply side economics argument.

Criticism of the laffer curve:
1. researchers suggest that the impact on tax rates on incentives to work, invest, and to save are small.
2.tax cuts also increase demands.

3. where the economy is actually located on the curve is yet to be located on the curve is yet to be determined.