SUPPLY SIDE ECONOMICS NOTES (4/7/15)

• The believe that the AS curve will determine levels of inflation, unemployment, and economic growth
• To increases economy, the AS curve will have to shift to the right, which will benefit the company first
• Supply side economists tend to focus on marginal tax rates
• marginal tax rates - amount paid on the last $ earned or on each additional $ earned
• Lower taxes are incentives for businesses to invest in our economy and are also incentives for workers to work more and harder, thereby becoming more productive
• Lower taxes are incentives for people to increase savings and therefore create lower interest rates which will increase business investment
• Supply side economists support policies that promote GDP growth by arguing that high marginal tax rates along w/ our current system of transfer payments, such as unemployment compensation or welfare programs, provide disincentives to work, invest, innovate, and undertake entrepreneurial ventures 
• Referred to as Reaganomics
• lowered marginal tax rates to get US out of recession -> deficit

Laffer Curve 

• trade off between tax rates and government revenue
• used to support supply side argument
• as tax revenue increases from 0, tax revenues increase from 0 to some maximum level and then declines 
• 3 criticisms of Laffer curve
• (1) research suggest that the impact of tax rates on incentives to work, to invest, and to save are small
• (2) tax cuts also increase demand which can fuel inflation and it causes demand to exceed supply
• (3) where the economy is actually located on the curve is yet to be determined