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Innovation & Economic Growth What promotes innovation? What creates Long Term Economic Growth? GDP GDP GDP INCENTIVES MATTER!!! Supply-Side Economics • Orthodox macro theory consists of demand-oriented theories – they failed to explain stagflation (late 1970s) • Supply-side economists believe the problems were high rates of taxation & heavy regulation: – This had reduced the incentive to work, save and invest. – What was needed was not a demand stimulus – Incentives are needed to stimulate supply. What is De-regulation? Supply-Side Policy • Basic Belief: Government Incentives Matter • Goal: use incentives to shift the aggregate supply curve right – Note: When PPF shifts right => AS shifts right • The supply-side toolbox consists of: LRAS1 Price Level P1 ----------------- SRAS1 E1 AD1 – Tax cuts to stimulate work, saving, and investment – Deregulation to reduce production cost/stimulate investment. Y Real GDP – Expenditures on education training/research expands capacity to produce 1 Cars United States 100 . ---------- B ----------- 50 50 100 Technology Goods Innovation & GDP Growth Cars United States 100 . P1 ---------- B ----------------- ----------- 50 LRAS1 Price Level 50 SRAS1 E1 AD1 100 Technology Goods Y1 Real GDP Innovation Bark People => please watch this video http://www.youtube.com/watch?v=BRAh4YemS0k Innovation: Creating Jobs? U.S. Economy LRAS1 Price Level ----------- E1 --------- P1 SRAS1 Y1 AD1 Y* Real GDP Innovation & USA • Financial Capital is needed to start a new businesses – Without money => ideas can’t become reality – Venture Capital Firms lend money to startups • Ideas for a new business easily raise money in USA – Google, Apple, Microsoft, Facebook, Bloomenergy etc… Recent IPO’s Public School System Movies on Charter Schools Innovation in Schools? Charter School Practice Test
