supply side policy sfls online
TRANSCRIPT
Keep trade deficits low, but no percentage number as a guide
Supply Side Policies
AD = C + I + G + (X – M)
The fiscal policies so far have been about shifting the AD curve to control the economy.
Price level
GDP
AD
SRAS
PE
LRAS
YN
AD/AS Model
So we have been looking at policies
to control with graph…
Why the AD Curve Slopes DownwardP
Y
AD
P1
Y1
P2
Y2 Y1
Y = C + I + G + (X – M)
and it’s all about controlling this demand side…
Aggregate Demand
AD/AS ModelTotal spending in an economy in a given time period.
Y = C + I + G + (X – M)
Y = C + I + G + NX
or
Ceteris Paribus:• When the P level rises, the Q of
real GDP demanded decreases.• When the P level falls, the Q of
real GDP demanded increases.
with this wonderful equation.
Price level
GDP
SRAS
PE
LRAS
YN
AD/AS Model
What about the other curves of LRAS and SRAS?
Fiscal policy and government intervention
as we know it today started in the great
depression of the 1930’s by Keynes.
A Bar 酒吧 in 1974
Supply side policies as we know it today started in a
bar in 1974
A Bar 酒吧 in 1974 3 men are drinking and
chatting and 1 of the man draws a graph on a
napkin
This graphs shows that that when governments tax the
people it can expect different amounts of
revenue at different points.
At 0% tax rates they collect 0 revenue
At 100% tax rates they collect 0 revenue
Taxing more means more revenue on the front side of
the graph
Taxing too much means less revenue on the backside of the
graph
A Bar 酒吧 in 1974 These conservative men end up working for this
president…
Ronald ReaganPresident 1981-1989
Ronald ReaganPresident 1981-1989
And change the ideas of what fiscal policy can be
about
Trickle down Economics
Ronald ReaganPresident 1981-1989
涓滴经济学an economic system in which the poorest gradually benefit as a result of the increasing wealth of the richest.
These policies are about making the government
smaller and increasing AS instead.
AD = C + I + G + (X – M)
We looked at Fiscal Policy for the AD Side
Now for the policies of AS
Supply-side polices
Aggregate Supply Theories
Increase AS and LRAS by providing incentives for businesses to encourage more productivity and shift the AS curves outward.
- considers how to improve the productive capacity of the economy.
Aggregate Supply Theories
- typically are Microeconomic policies aimed at making markets and industries operate more efficiently.
- it tends to be associated with Monetarist and free market economics ideas.
Supply-side polices
Types of Supply-side Policy
- idea is that lower taxes (income and corporation) increase the incentives for people to work harder, leading to more output.
Reducing income taxes
Types of Supply-side Policy
Proportional Taxes
Poor Rich Average
A tax whose average rate is constant at all income levels.
pay10%
pay10%
pay10%
Proportional Taxes
Poor Rich Average
A tax whose average rate is constant at all income levels.
pay10%
pay10%
pay10%
Remember the question, “What is fair? Rules or Results?”
Supply-side people often think “Flat Taxes” is considered fair.
- reducing barriers to entry in order to make the market more competitive and giving control of business to business not government.
Reducing income taxes
Types of Supply-side Policy
Deregulation & Privatization
Im some ways with business it’s kind of the same. Let business do
business!
Reducing income taxes
Types of Supply-side Policy
Deregulation & Privatization
- give an incentive to get back to work by taking away help!
Reducing welfare benefits
Reducing income taxes
Types of Supply-side Policy
Deregulation & Privatization
- give an incentive to get back to work by taking away help!
Reducing welfare benefits
The Poverty trap idea.
Reducing income taxes
Types of Supply-side Policy
Deregulation & Privatization Reducing welfare benefits
- Take power away from Trade Unions and better education and mobility for workers.
More flexible labor markets
Workers may come together to fight for their
rights and for better wages. Supply-siders think this just
makes it more expensive for businesses and stops innovation, so often try to prevent trade unions from
having much power.
Goals and Benefits of Supply-side Policy
Macro Economic Goals1.) Full employment
About 5% unemployment2.) Stability (Prices)
3.) Economic growth
4.) Balance of Payments Equilibrium
About 2% inflation
About 3% growth (7% in China)
Keep trade deficits low, but no percentage number as a guide
Macro Economic Goals1.) Full employment
About 5% unemployment2.) Stability (Prices)
3.) Economic growth
4.) Balance of Payments Equilibrium
About 2% inflation
About 3% growth (7% in China)
Keep trade deficits low, but no percentage number as a guide
It’s all the same goals, this is just another way to think to achieve to these goals.
Benefits of Supply-side Policy - more jobs created
Benefits of Supply-side Policy - more jobs created- reduces inflation - more productivity and
lower costs mean lower prices.
Price level
GDP
AD
SRAS
PE
LRAS
YN
AD/AS Model
If increase AS = increase
Economy and lower prices!!!
SRAS1
Benefits of Supply-side Policy - more jobs created- reduces inflation - more economic growth
Benefits of Supply-side Policy - more jobs created- reduces inflation - more economic growth - increase trade balances - products more
competitive so can sell more.
Benefits of Supply-side Policy - more jobs created- reduces inflation - more economic growth - increase trade balances - products more
competitive so sell more.
1.) Full employment - about 5% unemployment2.) Stability (Prices) 3.) Economic growth
- about 2% inflation- about 3% growth (7% in China)
4.) Balance of Payments Equilibrium
Problems of Supply-side Policy
Problems of Supply-side Policy - Increases Inequality 涓滴经济学 - the rich get richer,
and the poor relatively poorer
= 垃圾学说
These kind of policies often have led to increasing
It can be said to be true that the poor are NOT getting poorer, that the
poor are still better off now then they
were before
It can be said to be true that the poor are NOT getting poorer, that the
poor are still better off now then they
were before…
It can be said to be true that the poor are NOT getting poorer, that the
poor are still better off now then they
were before…
However these policies have often
made this gap between rich and
poorer, much larger.
Problems of Supply-side Policy - Increases Inequality - still need AD growth涓滴经济学
= 无用如果没有加 AD
Problems of Supply-side Policy - Increases Inequality - still need AD growth- Time lags - takes a long time to see
the results.
Problems of Supply-side Policy - Increases Inequality - still need AD growth- Time lags- can be very costly to implement
- for example education programs are not free.
AD = C + I + G + (X – M)
Resources to do Fiscal Policy
Also Supply Side policies…
- annual expenditures and tax receipts of the government. 支出和税收
Fiscal Policy
Fiscal Policy AD = C + I + G +
(X – M) Fiscal Budget
Even with supply-side policies, still need to maintain a budget
- annual expenditures and tax receipts of the government. 支出和税收
Fiscal Policy
Fiscal Policy AD = C + I + G +
(X – M) Fiscal Budget
- if expenditures exceeds tax receipts. Budget Deficit 支出 税收>
Actually under Reagan the deficit became much worse then
before!
- annual expenditures and tax receipts of the government. 支出和税收
Fiscal Policy
Fiscal Policy AD = C + I + G +
(X – M) Fiscal Budget
- if expenditures exceeds tax receipts. Budget Deficit 支出 税收>- if tax receipts exceeds expenditures. Budget Surplus 支出税收>
- annual expenditures and tax receipts of the government. 支出和税收
Fiscal Policy
Fiscal Policy AD = C + I + G +
(X – M) Fiscal Budget
- if expenditures exceeds tax receipts. Budget Deficit 支出 税收>- if tax receipts exceeds expenditures. Budget Surplus 支出税收>
- if tax receipts equals expenditures. Balanced Budget
支出税收=
Fiscal Policy AD = C + I + G +
(X – M) Fiscal BudgetBudget Deficit vs. Budget Surplus
The government borrows to finance a budget deficit and repays its debt when it has a budget surplus.
政府借到预算赤字融资。政府偿还其债务时,有预算盈余。The amount of debt outstanding that arises from past budget deficits is called national debt.旧债从过去的预算赤字总额被称为国家债务。
AD = C + I + G + (X – M)
Fiscal Policy
Budget Deficit Problem:
AD = C + I + G + (X – M)
Budget Deficit Problem:
Crowding out: - Government spending and borrowing that may fail to increase AD and hurts 排挤 private investment.
When the government has to borrow, it needs to borrow from the private sector. This could be private individuals, pension funds or investment trusts. It is argued that if the private sector buy government securities this will crowd out 排挤 private sector investment.
AD = C + I + G + (X – M)
Budget Deficit Problem:
Crowding out:
- Typically this deals with the increase of interest rates due to attempting to sell more bonds to finance debt
When the government has to borrow, it needs to borrow from the private sector. This could be private individuals, pension funds or investment trusts. It is argued that if the private sector buy government securities this will crowd out 排挤 private sector investment.
- Government spending and borrowing that may fail to increase AD and hurts 排挤 private investment.
AD = C + I + G + (X – M)
Budget Deficit Problem:
Long term debt: - Borrowed money has to be paid back with interest over time meaning to total costs will be higher.
Crowding out:
- Future budgets will have less discretionary spending ability due to having to pay back old loans
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