Transcript Demand-side/Supply-side

Demand-side/Supply-side
Economics!
Keynesian Economics
Demand-Side
• Argues that government spending can be used
to stabilize the economy
• Challenged the traditional, or classical private
enterprise theory
• Keynes believed that consumer spending moves
up and down as peoples’ incomes rise and fall
• Business investment goes up and down
depending on whether interest rates go up or
down
If businesses and consumers believe that the economy is
improving, they may increase their spending, raising
effective demand, and in turn, total output and employment
Argued that, since consumers may be hesitant to start
spending again, the government can stimulate effective
demand by increasing its purchases of goods and services,
thereby showing consumers its confidence in the economy
Argued that one way to deal with unemployment and
unequal distribution of income was to raise and lower levels
of taxation and government spending
Keynesian economics became the rationale for economic
policies after 1964 in Western Europe and North America.
It led to the further development of mixed economies.
Most mixed economies are based on either social
democracy or welfare capitalism
What are Social Democracy and
Welfare Capitalism?
• Social democrats believe that the
government should manage the economy
in the interests of all
• Welfare capitalism saw Keynes’ ideas
used to reform free enterprise so that it
could provide opportunities for people to
have a better economic life
Results of Demand-Side
Economics
• Economies based on Keynesian economics were
highly successful between 1945-1970 and the fear of
a post-war depression never materialized
• Incomes and social services rose, while
unemployment and inflation remained relatively low
• These successes quickly disappeared after oil prices
increased dramatically in 1973 and a worldwide
recession occurred. Demand-side economics could
not “fix” the recession
• Countries that had used Keynesian economics
incurred huge deficits
Supply-side or Neoconservatism
• Believe in reductions in all kinds of taxation,
which leaves more money in the hands of
consumers to spend, and in the hands of
businesses to invest in increased production
• This, combined with privatization of state-owned
companies and reduction in social spending,
results in a more productive economy smaller
government, more self-reliant population and
greater individual freedom
Examples of Neo-conservatism – Thatcherism after
Margaret Thatcher, former Prime Minister of England, and
Reaganomics, after Ronald Reagan, former President of
the U.S.
RESULTS OF SUPPLY-SIDE ECONOMICS
Reductions in government spending on social programs
can leave many people vulnerable and unable to adapt to
these economic changes
Higher rather than lower unemployment often results
It does lay a foundation for a stronger, more competitive
economy
Can lead to increased government revenues, lessening of
deficit, and less public debt
Based on what you have learned about Demand-side and Supply-side
economics,
Which type of economics do YOU feel is most desirable for Canadian
society?
Why did you choose this one?
Discuss this with your partner and be ready to share with the class.