Question

QUESTION in this lesson we discussed two major approaches to fiscal policy demand-side and supply-side economics Let's see how well you understand the concepts behind these Your task for each of these govenment actions, identity whether this is a supply-side or demand-side approach to the economy Supply-side B Demand-side compensation Tax rebate to producers on new factories Temporary Assistance for Needy Familes(TAN Property tax abatement for a corporate production facility Capital gains tax reductions Food stamps

Answer 1

Demand side policies aim to increase aggregate demand in the economy.

Aggregate Demand = Consumer Spending + Government Spending + Investment + Net Exports (exports-imports).

So anything that affects these factors will affect demand.

Supply-side policies are mainly micro-economic policies which are targeted for improving the efficiency and infrastructure level thus resulting in a faster growth of economy. Successful implementation of these can result in lowering the natural rate of unemployment.

• Unemployment compensation- Demand side
• Tax cut for wage earners - Supply side
• Tax rebate to producers on new factories- Demand side
• TANF- Supply side
• Job programs- Supply side
• Property tax abatement- Demand side
• Capital gains tax reduction- Demand side
• Food stamps- Supply side
• Government subsidized housing- Demand side
• Tax incentives for R&D- Supply side