Supply Side Economics
ReagonomicsMakes changes in AS but not AD and it determines the level of inflation, unemployment, and economic growth.
- Lower marginal tax rate induce more work this AS increases. It also makes leisure more expensive and work more attractive.
- Supply side economist support policies that promote GDP growth by arguing that high marginal tax rates along with the current system of transferred payment such as unemployment compensation and welfare programs provide disincentives to work, invest, innovate and undertake entrepreneur inventions.
Incentive to save and invest
1.High marginal tax rate can reduce the rewards for savings and investments.
2.Consumption might increase,but investment depend upon savings.
3.Lower marginal tax rates encourage saving and investment.
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