Discuss the differences between Keynesian and supply-side fiscal policies.
What will be an ideal response?
The essential difference is that Keynesians attempt smooth out the business by changing aggregate demand (total spending). The supply-siders focus on creating greater incentives to work, save and invest in order to shift the aggregate supply curve to the right. Keynesian economics is essentially demand-side economics. Supply-side economics focuses on the supply side of the AD-AS model.
You might also like to view...
Demand-pull inflation is caused:
a. by increases in production costs. b. by increases in tax rates by the government. c. by trade unions' pressure for wage hike. d. when spending increases in an economy producing at its maximum capacity. e. when increases in the supply of goods are exactly offset by increases in spending.
Figure 4-13
The drug BGH (bovine growth hormone) dramatically increases the milk output of dairy cows. Farmers in Wisconsin, a big dairy state, vigorously oppose licensing the drug, fearing that excess supply and a consumer reaction on the purity of food issue will put many of them out of business. Which graph in Figure 4-13 best illustrates the farmers' fears?
a.
1
b.
2
c.
3
d.
4
The interest rate effect and real wealth effect are important because they help to explain
A. why demand management policy cannot be used effectively when aggregate supply shifts to the left. B. the downward-sloping nature of the aggregate demand curve. C. why equilibrium real GDP rarely coincides with potential real GDP. D. why the aggregate demand curve may shift inward or outward.
Which of these is a drawback of logrolling?
A. All other proposals get support only after yours gets support. B. Your proposal will be supported only after all other proposals get supported. C. Nobody wins in the long run. D. Once you support someone's proposal, they can turn their back on yours.