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Chapter 13: Supply Side Fiscal Policy (page 264)

How are supply-side policies implemented and what types of supply-side policies are used?

Short Answer

Expert verified

Reduction of taxation

Interventionist

Non-Interventionist

Step by step solution

01

Supply-Side Fiscal Policy

Similarly to boost aggregate demand, the reduction of taxation levels can be used to promote economic growth, however, the main objective in mind is to give consumers, laborers more incentives to save, work more productively and invest more.

We differentiate between 2 types of policies on supply side,

Interventionist and

Non-Interventionist

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Most popular questions from this chapter

Explain how built-in (automatic) stabilizers work. What are the differences between proportional, progressive, and regressive tax systems as they relate to an economy’s built-in stability?

What is the role of the Council of Economic Advisers (CEA) as it relates to fiscal policy? Use an Internet search to find the names and university affiliations of the present members of the CEA.

Use the aggregate expenditures model to show how government fiscal policy could eliminate either a recessionary expenditure gap or an inflationary expenditure gap (Figure 11.7). Explain how equal-size increases in G and T could eliminate a recessionary gap and how equal-size decreases in G and T could eliminate an inflationary gap.

Briefly state and evaluate the problem of time lags in enacting and applying fiscal policy. Explain the idea of a political business cycle. How might expectations of a near-term policy reversal weaken fiscal policy based on changes in tax rates? What is the crowding-out effect, and why might it be relevant to fiscal policy?

True or false? If false, explain why.

  1. The total public debt is more relevant to an economy than the public debt as a percentage of GDP.

  2. An internally held public debt is like a debt of the left hand owed to the right hand.

  3. The Federal Reserve and federal government agencies hold more than three-fourths of the public debt.

  4. As a percentage of GDP, the total US public debt is the highest such debt among the world’s advanced industrial nations.
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