Question

What actions would a supply-side economist advocate to increase growth in GDP without causing inflation? Give at least two specific policy examples.

Answer 1

A supply-side economist focuses on increasing the aggregate supply to achieve economic growth. Following are two specific policies which a supply-side economist would adapt to increase growth in GDP without causing inflation:

1) Lowering taxes: According to supply-side economists, lowering taxes would encourage businesses to invest more, expand operations and produce more. In addition, firms would also hire more workers. This would result in higher GDP growth and a low price.

2) Reduction of regulation: Reduction in regulation also reduces costs of firms. in addition, this encourages firms to expand operations. Therefore, output increases, more workers are hired. As a result, the real output and GDP increases and a low price level are maintained.