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Unlike supply-side economics, demand-side economics is based on the assumption that increases in GNP result from increased spending. [29] Traditional policy approaches were challenged by the theory of supply-side economics in the Reagan Administration of the 1980s. It claims that fiscal policy may lead to changes in supply as well as in demand ...
Fiscal policy can be distinguished from monetary policy, in that fiscal policy deals with taxation and government spending and is often administered by a government department; while monetary policy deals with the money supply, interest rates and is often administered by a country's central bank. Both fiscal and monetary policies influence a ...
Based on supply-side economics, President Reagan implemented his economic policies in 1981. The four pillars of the policies were to: Reduce marginal tax rates on income from labor and capital. Reduce regulation. Tighten the money supply to reduce inflation. Reduce the growth of government spending.
Almost every aspect of government has an important economic component. A few examples of the kinds of economic policies that exist include: [1] Macroeconomic stabilization policy, which attempts to keep the money supply growing at a rate that does not result in excessive inflation, and attempts to smooth out the business cycle.
The pillars of Reagan's economic policy included increasing defense spending, balancing the federal budget and slowing the growth of government spending, reducing the federal income tax and capital gains tax, reducing government regulation, and tightening the money supply in order to reduce inflation.
Supply-side economics is a school of macroeconomic thought that argues that overall economic well-being is maximized by lowering the barriers to producing goods and services (the "Supply Side" of the economy). By lowering such barriers, consumers are thought to benefit from a greater supply of goods and services at lower prices.
Demand side fiscal policy would be ineffective in restraining central banks under a floating exchange rate system. Single currency zones relied, therefore, on similar levels of price stability, where a single monetary policy would suffice for all.
In fiscal year 2005, the deficit began to shrink due to a sharp increase in tax revenue. By 2007, the deficit was reduced to $161 billion; less than half of what it was in 2004 and the budget appeared well on its way to balance once again. Fiscal policy is the application of taxation and government spending to influence economic performance.