What is supply-side economics? What is the rationale for it? Is it effective?

Question

What will be an ideal response?

Answer 1

Some economists argue that a reduction in taxes will expand aggregate supply. From this perspective, fiscal policy can be used to increase real GDP with little or no rise in the price level, as would be the case if tax cuts expanded aggregate demand.
There are three possible reasons for the supply-side effect of tax cuts. First, lower taxes increase disposable income that may increase household saving. They may also stimulate businesses’ investments because they increase the after-tax profitability of businesses. Second, lower taxes also give people more incentive to work because they keep more of their income. Third, lower taxes will encourage more risk-taking and entrepreneurship in society because the after-tax reward has been increased.
Many economists are skeptical about the supply-side effect of tax cuts based on the experience with them during the 1980s. The positive effects on incentives to save, invest, or work may not be very large, and therefore the stimulus to the supply-side may be minor. In other words, the demand-side effects of tax cuts appear to be far greater, and more immediate than any of the supply-side effects.