Teresa VanLoke Eco -111 October 17, 2013
Aggregate supply is a type of economics that tries to improve the productive capacity of the economy. A.S (aggregate supply) usually associated with monetarist or free market economics. These type of economics try to pinpoint the benefits of making markets, such as labor markets more flexible then they already are. Some supply side policies involve more government intervention to overcome failures.
Benefits of the supply side include: lower inflation, lower unemployment, improved economic growth, and improved trade and balance of payments.in supply side to receive lower inflation you must first find a way to make prices lower, to achieve this you must shift everything to the right. The next benefit to the supply side is lower unemployment. For lower unemployment the ...view middle of the document...
The weaknesses of the supply side include violating people’s morals, it’s only for the short run, and it doesn’t always work the way expected. Violating people’s sense morals is never good in a recession, people are already dealing with issues they don’t want to have to deal their morals being violated. We need a plan that will help us for longer than a few years. If a plan doesn’t work out then it’s just wasted time and money.
The monetary policies for the supply side should include an increase of supply in goods and productivity. An increase in supply of goods will make the prices drop and make more people inclined to buy instead of save. Productivity is the goods you produce over a period of time. More productivity equals more jobs and more money in the economy.
The Aggregate demand economics believes that the government should take on debt and then pay it off when the economy recovers. They also believe when the economy is in a recession the government needs to stimulate the economy. The government can do this by adding money. The government also needs to slow down growth if it has risen too fast, they can do that by raising taxes and interest. The general idea behind the AD is to match the input of goods and services to the output of goods and services .This will create an equilibrium. Aggregate demand shifts with changes in prices, investment and consumption patterns, and government spending. Government can use fiscal and monetary policies to affect aggregate demand. Fiscal policy involves the use of government spending and taxation to affect demand. Monetary policy involves regulation of the money supply to ensure sustained economic growth and price stability. Aggregate Demand monetary policies raise the money supply and that increases aggregate demand by reducing interest rates and thus the cost of borrowing. Reducing the money supply lowers aggregate demand by boosting interest rates.