Supply Side Economics

Topics: Monetary policy, Macroeconomics, Inflation Pages: 2 (655 words) Published: August 2, 2005
Supply-Side economics and policies would best benefit the economy in the case of a recession in the year 2000. Supply-side policies are made of several important points to regulate the economy. Supply-side policies consist of stimulating the economy by production, cutting taxes, and limiting government regulations to increase incentives for businesses and individuals. Businesses then would invest more and expand to create jobs for people who would save and spend more money. Thus, increased investment and productivity would lead to increased output in the economy. With this increased output the economy grows and unemployment goes down. Yet, this would not be the only policy to bring the economy out of a recession. A monetary policy must be implemented in order to compliment the supply-side policies that stimulate the economy to bring it out of recession. The monetary policy that would best work with the supply-side policies would the easy money policy. Under the easy money policy, the Fed allows the money supply to grow and interest rates to fall, which normally stimulates the economy. The idea behind this policy is that when interest rates are low, people tend to buy on credit, this in turn encourages sales at stores and production at factories. This would definitely compliment the theory behind the supply-side policies by creating more "supply" for consumers to buy. Businesses also tend to borrow and then invest in new plants and equipment when money is "cheap". This "cheap" money is used not only in these new plants but in the hiring of employees to work and earn money to spend. Along with moral suasion, persuasion to get consumers to buy, and open market operations, the buying and selling of government securities in financial markets, the easy money policy can only help supply-side economics in it's route to ending a recession and gaining economic stability. All of these policies combined, supply-side, easy money policy, open market operation, and moral...
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