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Macroeconomics Questions:

“Market-oriented supply-side policies will always be more effective in promoting economic growth…

Complete Question Text:

“Market-oriented supply-side policies will always be more effective in promoting economic growth than demand-side policies.” To what extent is this statement true?

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Asked on Dec. 10, 2013, 5:56 p.m.

I will provide you with valid points on each side, and let you determine from them whether supply-side or demand-side policies are more effective in promoting growth.

Demand-side:
This side is predominantly based off of Keynesian thinking. The thought process is that if the government gives consumers more money to spend(increasing their demand for goods and services), then this would prompt suppliers to produce more to meet the higher demand. The government could distribute this money either by printing more or by lowering taxes. Often times though, this leads to a larger than ideal government and also takes away money from producers.

Supply-side:
This predominantly features Reagan ideals, and the basic theory is that if producers are encouraged to produce more, then the demand would fall in suit. One way of doing this would be to lower taxes on producers, so that they could lower prices and consumers would then be better off. However, lowering these taxes often leads to the rich getting richer(the supply-side).

In the end, supply-side policies often initially benefit the suppliers, but that eventually trickles down to the demand-side as well. Demand-side policies are meant to improve demand, but that does not always mean that the supply-side will also benefit.

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