SUPPLY SIDE ECONOMICS

SUPPLY SIDE ECONOMICS - Employers hire more workers....

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SECTION 27: SUPPLY SIDE ECONOMICS
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SUPPLY SIDE ECONOMICS Government policies that focus on stimulating aggregate supply rather than aggregate demand Tax cuts aimed at influencing businesses to produce more and laborers to work more
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EXAMPLE OF SUPPLY SIDE ECONOMIC POLICY: CUT TAX RATES FOR INDIVIDUALS Increases the return from an hour of work. Might encourage laborers to work more
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POSSIBLE COUNTER ARGUMENT: If taxes are cut, disposable incomes of workers increase. With higher incomes, some workers might choose to work less and enjoy leisure time.
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EXAMPLE OF SUPPLY SIDE ECONOMIC POLICY: “TRICKLE DOWN ECONOMICS” CUT CORPORATE TAX RATES Causes after tax profits to increase. This stimulates investment and production.
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Unformatted text preview: Employers hire more workers. Effects of tax cut trickle down and workers will benefit. WHAT IS THE OPTIMAL TAX RATE? THE LAFFER CURVE A graph showing total tax revenue as a function of the tax rate Named after the economist Arthur Laffer who advised President Reagan. At what tax rate will tax revenue be a maximum? If tax rate = 0%, tax revenue = $0 If tax rate = 100%, tax revenue = $0 (No one would work) There is some intermediate tax rate at which tax revenue is a maximum THE LAFFER CURVE Used by supply-side economists to support arguments for a tax cut They argued that tax rates are too high A decrease in tax rates will cause output and tax revenue to increase....
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This note was uploaded on 04/15/2008 for the course ECON 0110 taught by Professor Kenkel during the Fall '08 term at Pittsburgh.

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SUPPLY SIDE ECONOMICS - Employers hire more workers....

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