Download Demand Side Economics

Demand Side Economics
Keynesian Economics
Fiscal Policy
 Fiscal policy is how a government raises
and spends it’s money
 It raises money through taxes and it has the
option of raising taxes or lowering taxes
 It can either spend more money than it
makes (deficit financing) or
 It can spend less money than it
makes.(surplus financing)
Monetary Policy
 Monetary policy is what a government
does with the supply of money.
 This is controlled through interest rates.
 Lower interest rates have the effect of
increasing spending.
 Higher interest rates have the effect of
decreasing spending.
Demand Side Economics
Depression
 Keynes used these ideas and they were applied
in the New Deal by Roosevelt in the 1930’s
 The idea is to give money to the consumers to
revive the economy
 Fiscal Policy- reduce taxes, increase spending
to create work projects to increase employment
( deficit financing)
Demand Side
Depression cont’d
• Fiscal Policy (cont’d)
• New Deal- The government created
jobs with the Alphabet agencies
• T.V.A. , C.C.C., N.R.A. etc.
• They also introduced Welfare and
employment insurance, and A.A.A.
Demand Side Monetary
policy
F Keynes said that in times of
depression the government should
lower interest rates to encourage
spending
F In times of inflation, the
government should raise interest
rates in order to discourage
spending and borrowing
Demand side Inflation

Fiscal Policy
– The government should reduce
spending, and increase taxes. This way
they could surplus finance and pay off
the debt accrued when they were in the
depression.
Supply Side Economics
 Often referred to as Reaganomics, or
Thatcherism
 Ralph Klein in Alberta has followed this
philosophy.
Supply Side Depression




Reagan said that the way out of a
depression was to give money to the
people who could create jobs in the
private sector.
Less government is good government
Therefore, reduce taxes on wealthy
people, and give subsidies to
companies(producers)
This money would be reinvested and jobs
would be created, not at the tax payers
expense.(trickle down theory)
Supply Side
Supply side economists believe that
the government should not be
involved in the economy.
Deregulation, privatization are
emphasized to encourage
entrepreneurs.
Supply side inflation
 The government should do nothing in
times of inflation because things are
going well for the businesses that drive
the economy.
 Monetary policy would be the same as
for demand side economists.