Question

What are some of the policy tools used by supply-side economists, and how do they work?

Answer 1

Supply side economists argue that economic growth can be effectively created by lowering taxes and decreasing regulations. The consumers then will benefit from lower prices due to greater supply of goods and services. The three main tools that supply side economists have are:

1) Tax policy : This includes increasing or decreasing tax rates on production houses. If tax rates are lowered on production, it would incentivize the producers to produce more and thus increase the supply leading to lower prices and benefit for consumers.

2) Regulatory policy: If government eases regulationns regarding production, there would be more firms entering the production sector leading to higher competition as well as higher supply of goods and services. Both the factors would again reduce the price and benefit consumers.

3) Monetary policy : Lowering of interest rates could lead to increased investments in the manufacturing sector which would increase capacities of production units. This would again lead to higher production of goods and services and thus higher supply causing a fall in the prices and again benefitting consumers.