Supply Side Economic Theory

BACKGROUND ON THE IMPLEMENTATION OF

The Keynesian model was based on the premise that, until the capacity constraint is reached within an economy, supply remains passive (Gwartney, Stroup, & Studenmund, 1989). In this model, supply always reacts to the stimulus of aggregate demand (Gwartney, Stroup, & Studenmund, 1989). Thus, in the Keynesian model, there is a link between a fullemployment deficit or surplus, and aggregate demand (Gwartney, Stroup, & Studenmund, 1989). Within this model, thus, fiscal policy attempts to stimulate demand, as a means of promoting economic growth.

In the late1970s, the Keynesian model appeared to be losing its ability to accurate explain economic events, as the phenomenon of stagflation developed. Supplyside fiscalists

stepped into this apparent breech. The supplyside fiscalists emphasized the interrelationship between governmental tax and expenditure policy, and aggregate supply (Gwartney, Stroup, & Studenmund, 1989). It was the contention of the supplyside fiscalists that relative price changes induced through governmental tax and expenditure policy woul generate production incentives; th

. . .
agan administration were the (1) enormous federal budget deficits, and (2) a rapidly growing national debt of almost unbelievable magnitude. These outcomes are partly the result of the implementation of supplyside fiscal policies at an inappropriate time, but are largely to 6result of the borrowing of bits and pieces of supplyside fiscal theory by the Reagan administration, which then added those bits and pieces Keynesianstyle pump priming, and created alarming longterm consequences for the economy.following discussions. The Federal Budget Deficit When Ronald Reagan campaigned for the presidency in 1980, one of his most consistent themes was that of the economic evils of the irresponsibly high federal budget deficits attributed to the Carter administration. Candidate Reagan pledged to restore economic sanity by, among other things, eliminating federal budget deficits by the end of the third year of his first term as president. During the four fiscal years in which Jimmy Carter was president (fiscal years 19771980), the federal budget deficits totalled $226.8 billion (Council of Economic Advisers, July 1988). This cumulative Carter administration deficit followed a cumulative deficit of $144.1 billion i
. . .

Some common words found in the essay are:
Economic Advisers, Nixon/Ford Carter, President Reagan, Stroup Studenmund, National Debt, Reserve Board, Recovery Act, Reaganomics Reaganomics, Carter Reagan, Reserve Democratic, federal budget, reagan administration, economic advisers, federal budget deficits, council economic advisers, federal debt, council economic, budget deficits, budget deficit, fiscal policy, publicly held, gwartney stroup studenmund, federal government, stroup studenmund 1989, economic advisers 1990,
Approximate Word count = 2787
Approximate Pages = 11 (250 words per page)

More Essays on Supply Side Economic Theory