Explain the differences between Keynesian and supply-side economic policies.

Question

What will be an ideal response?

Answer 1

The ideal answer should include:
- Tax policy:
* Keynesian: moderate tax cuts
* Supply-side: tax cuts combined with reductions in public spending and deregulation; revenues lost by lower tax rates would be offset by revenue from new economic growth ("Reaganomics" or "trickle-down economics")
- Government spending:
* Keynesian: increased government spending combined with moderate tax cuts would stimulate the economy and reduce unemployment
* Supply-side: spending cuts would keep the federal deficit under control and interest rates down
- Theories of economic growth:
* Keynesian: greater consumer demand caused by greater consumer buying power would lead to economic expansion
* Supply-side: "trickle-down economics" would give private entrepreneurs and investors greater incentives to start businesses, take risks, invest capital, and create new wealth and jobs
- Criticism of each position:
* Keynesian: Republicans wanted to reduce the flow of federal dollars to two core Democratic constituencies who benefitted from increased government spending called for in Keynesian economics-the recipients and professional providers of health and welfare programs
* Supply-side: Democrats and others who opposed Republicans were unhappy that the affluent and the business community, two of the most loyal Republican constituencies, were rewarded; George Gilder-"a successful economy depends on the proliferation of the rich"