What are the key differences between supply-side and demand-side policies?
Supply-side policies focus on shifting the AS curve, while demand-side policies focus on shifting the AD curve. Supply-side aims to boost production, while demand-side aims to boost spending.
Compare the short-run and long-run effects of supply-side policies.
In the short run, supply-side policies may have a limited impact, but in the long run, they can lead to sustainable economic growth and increased productivity.
Compare fiscal and monetary policy.
Fiscal policy involves government spending and taxation, while monetary policy involves managing the money supply and interest rates.
Compare the effects of a decrease in income taxes versus an investment tax credit on aggregate demand.
A decrease in income taxes directly increases disposable income and consumer spending, while an investment tax credit encourages business investment and capital formation.
Compare the effects of government spending on infrastructure versus government spending on education on long-term economic growth.
Infrastructure spending improves the physical foundations for economic activity, while education spending enhances human capital and labor productivity.
Compare the effects of lower taxes on businesses versus lower taxes on individuals.
Lower taxes on businesses encourage investment and production, while lower taxes on individuals increase disposable income and consumer spending.
Compare the effects of supply-side policies on inflation versus unemployment.
Supply-side policies can reduce both inflation and unemployment by increasing aggregate supply and productivity, leading to lower prices and more job opportunities.
Compare the effects of government subsidies versus tax credits on business investment.
Government subsidies directly reduce the cost of production, while tax credits reduce the after-tax cost of investment.
Compare the effects of government regulation versus deregulation on market efficiency.
Government regulation can correct market failures but may also increase costs and reduce efficiency, while deregulation can increase competition and efficiency but may also lead to market failures.
Compare the effects of short-term fiscal stimulus versus long-term structural reforms on economic growth.
Short-term fiscal stimulus can provide immediate relief during a recession, while long-term structural reforms aim to improve the economy's underlying fundamentals and potential growth rate.
Define Public Policy.
Government actions designed to influence the economy.
Define Economic Growth.
An increase in the amount of goods and services produced per head of the population over a period of time.
Define Real GDP per capita.
A measure of a country's economic output that accounts for the effects of inflation and the number of people in the country.
Define Human Capital.
The skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.
Define Infrastructure.
The basic physical and organizational structures and facilities (e.g., buildings, roads, power supplies) needed for the operation of a society or enterprise.
Define Innovation.
The introduction of something new; a new idea, method, or device.
Define Supply-Side Economics.
An economic theory that advocates reducing taxes and deregulation to increase production and stimulate economic growth.
Define Short-Run Aggregate Supply (SRAS).
The total quantity of goods and services firms are willing and able to supply at different price levels in the short run.
Define Long-Run Aggregate Supply (LRAS).
The total quantity of goods and services firms are willing and able to supply at different price levels in the long run.
Define Demand-Side Policies.
Government policies that focus on shifting the Aggregate Demand (AD) curve to influence economic activity.
Define Aggregate Demand (AD).
The total demand for final goods and services in an economy at a given time.
Define Investment Tax Credit.
A tax incentive that allows businesses to deduct a percentage of the cost of new investments from their taxes.
Define Productivity.
The effectiveness of productive effort, especially in industry, as measured in terms of the rate of output per unit of input.
Analyze a graph showing a rightward shift of the SRAS curve.
A rightward shift indicates an increase in aggregate supply, potentially due to lower production costs or improved technology, leading to lower price levels and higher output.
Analyze a graph showing a rightward shift of the LRAS curve.
A rightward shift indicates an increase in the economy's potential output, potentially due to increased resources, improved technology, or increased human capital, leading to long-term economic growth.
Analyze a graph showing a rightward shift of the AD curve.
A rightward shift indicates an increase in aggregate demand, potentially due to increased government spending or consumer confidence, leading to higher price levels and higher output.
Explain how a simultaneous rightward shift of both AD and AS curves affects the equilibrium price level and output.
Output will increase. The effect on the price level is indeterminate without knowing the relative magnitudes of the shifts.
Explain how a rightward shift of the AS curve can lead to a decrease in the price level and an increase in real GDP.
An increase in aggregate supply puts downward pressure on prices as firms are able to produce more goods and services at lower costs, leading to higher output and lower inflation.
Explain how an increase in government spending on infrastructure can lead to a rightward shift of the AD curve.
Increased government spending injects more money into the economy, boosting demand for goods and services and shifting the AD curve to the right.
Analyze how a decrease in business taxes can shift the SRAS curve.
A decrease in business taxes reduces production costs, leading to an increase in aggregate supply and a rightward shift of the SRAS curve.
Analyze how an investment tax credit can shift the AS curve.
An investment tax credit encourages businesses to invest more, leading to increased productivity and a rightward shift of the AS curve.
Analyze how an increase in government spending on education can shift the LRAS curve.
Increased investment in education improves the quality of the labor force, leading to higher productivity and a rightward shift of the LRAS curve.
Analyze how a decrease in regulations can shift the AS curve.
A decrease in regulations reduces the costs of doing business, leading to an increase in aggregate supply and a rightward shift of the AS curve.
