Econ Reading 8 - Reading 08 Econ 103 Macroeconomic Principles Professor Werner Baer page 1 Fall12010 Reading 8 Supply Side Economics What we have

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Reading 08 page 1 Econ 103 — Macroeconomic Principles – Professor Werner Baer Fall 2010 Reading 8: Supply Side Economics What we have studied until now can be called demand side economics, because we looked at how to change demand of people to affect the economy. For example, we tried to change consumption (demand by households), investment (demand by firms), government expenditures, etc. Supply side economics focuses on the aggregate supply of the economy. The idea is that if producers (suppliers) are better off (getting larger profits), then they might invest more and pay higher wages to workers, which will affect the aggregate demand on the other side. Therefore, supply-side economists advocate lower taxes, less government regulation, and less government spending. What do these policies do for businesses? Taxes: Lower taxes means higher profits for the firms, stimulating investment and increasing wages. Higher wages work as incentive to work harder, increasing productivity of the economy.
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This note was uploaded on 03/10/2011 for the course ECON 103 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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