Supply - Side Economics

• Supply - Side Economists tend to believe that the AS curve will determine levels of inflation, unemployment, and economic growth
• to increases economy, you take actions to  shift the AS curve to the right, always benefiting the company first
• focus on marginal tax rates
• Marginal Tax Rates - the amount paid on the last dollar earned or on each additional dollar
• believe that if reduce marginal tax rate, it would encourage more people to work longer in which they would forgo their leisure time for extra income
• lower taxes are incentives for businesses to invest in our economy
• lower taxes are incentives for people to increase savings and therefore create lower interest rats for increases in business investment
• Reaganomics ( another name for Supply - Side Economics )

Laffer Curve - trade - off between tax rates and government revenue

• used to support Supply - Side argument
• tax revenue increases from 0 to some max level then declines as tax rates increase from 0 then.... ( it's a cycle )
• opportunity cost, choose best option to go for

1. research suggest that the impact of tax rates on incentives to work, save, and invest are small
2. tax cuts also increase demand, which can fuel inflation, which will cause demand to exceed supply
3. where the economy is actually located on the curve is difficult to determine

Reaganomics - used to get out of recession

• lower marginal tax rates to get U.S. out of a recession led to a deficit
• Clinton raised marginal tax rate, led to surplus