Question

what is the difference between supply-side and Demand-side interventions? then provide an example of suply-side and demand-side intervention aimed at increasing household savings.

complete answer please, preferably in paraghraph form.

Answer 1

Supply and demand are two of the most important concepts in economics, but which matters the most? In this lesson, we'll explore each side and see how their supporters defend them

Supply Side Versus Demand Side Economics

Supply-side is the opposite of Keynesian theory. It states that demand is the primary driving force of economic growth. Supporters use fiscal policy to better the lives of consumers regardless of whether they work or not.6

According to the Keynesian theory, putting more money into consumers' pockets directly drives the demand that increases growth.

A study by Moody's and Economy.com found that every dollar spent on unemployment benefits stimulates $1.73 in economic demand.7 For example, the Obama benefit extensions cost taxpayers, but generated economic growth per month, too.8 Its tools are government spending on sectors like education and health care, which creates jobs and puts people to work

Demand-side economics is a macroeconomic theory which maintains that economic growth and full employment are most effectively created by high demand for products and services According to demand-side economics, output is determined by effective demand. High consumer spending leads to business expansion, resulting in greater employment opportunities. Higher levels of employment create a multiplier effect that further stimulates aggregate demand, leading to greater economic growth.

Demand-side economists argue tax breaks for the wealthy produce little, if any, economic benefit because most of the additional money is not spent on goods or services but is reinvested in an economy with low demand (which makes speculative bubbles likely). Instead, they argue increased governmental spending will help to grow the economy by spurring additional employment opportunities. They cite the lessons of the Great Depression of the 1930s as evidence that increased governmental spending spurs growth.

British economist John Maynard Keynes is the most celebrated of demand-side economic theorists. He was able to show there is no automatic stabilizing mechanism built into an economy and because of that, economic intervention is necessary. Keynes saw his theories successfully demonstrated in the 1930s when they helped to end the Great Depression and into the 1950s and 60s when capitalism experienced its Golden Age.Additional proponents of demand-side economics include Leon Keyserling, John Kenneth Galbraith, Hyman Minsky, Joseph Stiglitz, James K. Galbraith, Steve Keen and Nouriel Roubini.

Demand-side economics is held in opposition to supply-side economics which argues that economic growth can be most effectively created by stimulating business through lowering tax rates on business and decreasing regulation of corporate and financial activities.

e.g Supply-side economics is a macroeconomic theory arguing that economic growth can be most effectively created by lowering taxes and decreasing regulation, by which it is directly opposed to demand-side economics. According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices and employment will increase.

The Laffer curve, a theoretical relationship between rates of taxation and government revenue which suggests that lower tax rates when the tax level is too high will actually boost government revenue because of higher economic growth, is one of the main theoretical constructs of supply-side economics.

The term "supply-side economics" was thought for some time to have been coined by journalist Jude Wanniski in 1975, but according to Robert D. Atkinson the term "supply side" was first used in 1976 by Herbert Stein (a former economic adviser to President Richard Nixon) and only later that year was this term repeated by Jude Wanniski. Its use connotes the ideas of economists Robert Mundell and Arthur Laffer.

supply-side story that can be fixed by raising the demand for goods–by printing money, by ordering more government goods–but these solutions are ultimately Rube Goldberg devices for raising the price level so that workers become cheaper so they can go back to producing output. The core economic story in sticky-wage Keynesianism is about firms that are rationally deciding to produce less output not because of a fall in demand for goods but because of a rise in costs.

I think supply-side failures are important to the business cycle, and the sticky-wage Keynesian channel is one of those supply-side failures. But I’m no business cycle monocauser: I suspect there’s some straightforward demand failure going on during recessions as well.