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Transcript
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.