The Two Differences Of Keynesian Economics And Supply-Side Economics

Employment may be greatly effected by a huge surge in supply that would cause businesses to hire more workers to meet the need of this great surge in supply and production. This surge in new employment would then put money in the pockets of consumers to buy products and create a demand. International trade can be greatly affected by supply-side policies. Businesses are more likely to export their goods if the economy is good and they have the resources to do so. Also businesses may import resources to produce their goods or services.

However, these long and short term economic improvements are only what is predicted to happen and there negatives to the reduction in income tax. A factor that the government must take into account is the budget deficit, can the government afford to simply cut income tax that is a large source of revenue for the budget. A worsened budget deficit could have devastating impacts upon the economy, for example less people able to have the benefits they require, (this would also reduce demand in the economy as those on benefits generally spend the money they have as they do not have spare to save, this may damage the economy even further) or a reduction in money towards health care. Also, a reduction in income tax does not necessarily mean

What happens to the economy when the government raises or lowers taxes? Lots of people in America do not understand exactly what happens to the economy when the government raises or lowers taxes. In this paper I am going to address that question as well as a few other things such as: Describing the effect on net personal income when the government raises taxes and when the government lowers taxes. Describing how the Gross Domestic Product (GDP) is affected by higher taxes and lower taxes. I will also identify what other economic factors are affected when taxes are raised or

One microeconomic concept Proposition 56 relates to is supply, demand, and equilibrium. Taxes imposed by the government reduce both demand and supply, and cause the market equilibrium to increase and quantity to decrease. Consumers will not want to purchase because of the increase in

Taxes are essential for they enable the economy to function more properly. Taxes are useful for funding programs such as, public transportation, education, and health care services, however, taxation on goods and other resources can negatively affect individuals whose socioeconomic status is low. In my opinion, taxation has different effects on different areas of our economy, taxes do affect American citizens as well as the economic policy by raising or lowering the amount of income the government receives.

For people include myself who does not support the more progressivity tax system, main argument is that the rising of marginal tax rate on upper income earner will stunt economic growth, decrease labour supply, reduce reported income and make Canada has less competitiveness. There are lots of research papers that evaluate the relationship between the high marginal tax rate and the economic and found that the high marginal tax rate is correlate with the drop in the economic growth. Christina D. Romer and David H. Romer (The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks) investigated the effect of the U.S tax reforms on GDP and concluded that "a tax increase of 1 percent of GDP lowered output, as measured

When taxes remove money from people, our purchasing power is reduced. Whatever the government spends to create jobs comes out of the paychecks of people, which means we are less likely to spend money on ourselves. A real life example of how taxation affects the government could be: the government tries to create jobs by using money from taxes to build planes or equipment, but since people know that their money goes into the planes or equipment, they are drawn away from going on vacation or buying other thing for example. I had not thought about it in the past, but it makes sense that tax cuts raise the total revenue for the government because tax cuts make people more likely to purchasing more things than we would with higher tax rates.

Supply and Demand-Side economists have been at ends with each other about which method would be the more efficient in helping the economy grow. Both involve changing the government control and regulations within the economy. One side wishes to increase government iteration, while the other wishes to decrease it. Economists vary greatly in which policies would best help the economy grow, each with there own advantages and disadvantages. Supply-Side economists believe that by decreasing government control, the law of supply and demand of the people will help stimulate the economy.

The first and foremost affected is the individual consumer. For the sake of continuity and this argument, it will be assumed that this consumer is also a laborer in the workforce. According to economic theory, the laborer spreads his or her time in the day between labor and leisure, all according to personal preference (citation needed). Within this theory, the trade off between labor and leisure comes as a downward sloping line that represents the hours devoted to each variable along the axis.5 Now if a higher tax rate was introduced, we can assume that income (the “y” variable) would decrease if working hours remained constant. This would result in a rotation downward for the trade-off line, meaning that the income would decrease. All this results in a

Taxes discourages market activity and/or growth. Taxes disrupts the markets natural equilibrium by artificially raising the price of the good. The customers reaction to the higher price is to buy less of the good, and manufacturers reaction is to provide less of the good at a higher price to remain in business.

The post -Second World War growth period, which is called Golden Age of Capitalism, has a great influence in human economic history. During the period of time, a great many of the capitalist countries have dramatically increased their economy and prosperity, such as United State which has a substantially economic expansion at an average rate of 3.5% annually between 1945 and 1970. Economic growth may be resulted by deregulation of market, rise of automotive manufacture and industrialization which contribute to freight transportation, international corporation and emergence of innovation.However, this prosperous period has not sustained permanently. 2007 global economic crises, which is a global financial breakdown and increase

The methods that supply-side economics uses to improve economic growth are to lower marginal taxes and less government regulation. Under President Ronald Reagan, Congress passed a plan that would slash taxes by $749 billion over five years. As a result, Reagan was called a great advocate for supply-side economics and was praised for his great leadership. Although supply-side economics is based on the idea of encouraging people to work harder, it also seems to not always work. For example, Congress passed the cut in tax rates after Reagan was elected, but tax revenues did not rise. This goes to show that other economic policies need to be examined in order for the economy to be successful.

Neoliberalism and Keynesian economics are both really about who has control of the economy. Neoliberalism emphasizes very little in the way of state controls of an economy in the way of government policies and regulations. The Keynesian phase of global capitalism emphasizes state support of industries and economic controls through government policies and regulations. In addition, the Keynesian phase was more about economic freedom through redistributive policies and public expenditures. This lead to new laws being passed as well as the creation of new government institutions. On the other hand, neoliberalism is really just a new spin on an old idea, Laissez-faire and Neoclassicial economics. Neoliberalism promoted transferring state control of the economy to the private sector. Neoliberalists pushed for the privatization of state run businesses, and further extended the idea of private property into new sectors of the economy. They also sought to reduce the governments role in the economy by limiting government spending, and sought to undo much of what had been accomplished during the Keynesian phase of global capitalism.

When there is a decrease in taxes, households have a greater income which in turn allows them to spend their money at business. When households have a higher income, it lessens the amount of money the government has to provide for households. Business will be able to stay competitive in the market because people will have more money to spend on their goods and

The classical school is one of the economic thoughts; the key assumption of this school is that the market system is the most efficient system in the sense that the unencumbered market mechanism ensures the optimal allocation and utilisation of scarce resources. They also believed that “Supply creates its own demand.” (Taylor, 1984)In other words, in the process of producing output, businesses would also create enough income to ensure that all of the output will be sold. Another assumption is that the market system automatically restores economic equilibrium from any temporary shock, meaning government intervention is unnecessary. The second school of thought is the Keynesian school; the key assumptions of this school are that the market system is instinctively unstable in the sense that it falls to maintain economic equilibrium from time to time. Once disequilibrium occurs the market mechanism may not be able to restore equilibrium automatically, which could progressively lead to market failure or economic paralysis. Therefore the market mechanism may not be efficient and government intervention is most likely to occur in situations of market failure, for example the great depression or the 2007 and 2009 global crisis. (yin