Question

   2. Demand Side and Supply Side Economics

                 a. Explain the difference between demand-side and supply-side economics.

                 b. How do demand-side policies cause GDP to grow?

                 c. How do supply-side policies cause GDP to grow?

Answer 1

A.

demand side : demand side economics is a theory in macroeconomics which states that the economics growth is primarily caused by the high demands for different products and services. according to this theory effective demand leads to output

supply side: Supply-side economics is a theory in macroeconomics which states that the tax cuts and easing the regulations can most effectively create economic growth

B. in demand side, higher consumer spending will lead to expansion of business which further leads to higher employment. this higher employment results in a multiplier effect which further boosts the aggregate demand, thus causing the GDP to grow

C. in supply side, the tax cuts can provide incentives for investors to save and invest. lower taxes also benefits the consumers as the prices of goods and services will be lowered. this in turn expands the whole economy and thus the GDP