Supply-side economics and trickle-down policy

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I recognize the term “supply-side economics” as phrased in my high school course, “trickle-down policy”. The increase of goods without a shift in aggregate demand curve will increase supply, and lower prices.

A supply-based policy is a tool of government to affect the supply output of the economy, via taxes and government spending. Technological advances often increase the output potential of supply, as would an abundance of resources. Government promotes technological advancement with tax credits to companies which invest in research and development. Another example of government incentives includes education. The Pell Grant is a commonly known fund for college students, supplied with the long term goal of producing well-trained and knowledgeable workers. The lowering of corporate profit tax rates encourages corporate initiative to generate further profit, and the lowering of marginal income tax rates encourages the worker to maximize production for a larger share of income. These policies have the goal of increasing supply via promoting increased production in the long term.

The supply-sided view sees tax cuts as an incentive for higher work, employment and income rates to create a higher tax revenue. The Laffer curve identifies the relation between the human reaction to incentives and the tax rate.

Reference no: EM131172342

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