ShmoopTube

Where Monty Python meets your 10th grade teacher.

Search Thousands of Shmoop Videos

Econ: What are Supply Side Economics? 12 Views


Share It!


Description:

What are Supply Side Economics? The idea behind supply side economics is that if consumers have more money to spend (supply) then the demand for goods and services will increase as well. So, by providing tax cuts to individuals who invest and stimulate the economy, it’s expected that they will use these tax savings to spend more money and this will positively affect the economy.

Language:
English Language

Transcript

00:00

and finance Allah shmoop What Our supply side economics All

00:08

right people We all know that classic graph the most

00:11

famous of all economics crafts showing the upward sloping supply

00:15

curve there and the downward sloping demand curve there Yeah

00:19

we all know that where supply and demand crosses the

00:22

price there and the quantity where goods can be sold

00:26

on the market most efficiently well suppliers supply acts amount

00:29

of why goods at ze price and consumers by X

00:33

amount of why goods at ze price and yada yada

00:36

yada you get the picture There it is If it

00:38

takes two to tango and create economic growth both supply

00:41

and demand tingling there Why is their supply side economics

00:46

and then demand side economics Well it's kind of a

00:49

chicken and egg problem Demand siders The trickle up believers

00:53

think the economy is driven by consumer demand You know

00:56

at the bottom of the economic pyramid I eat you

00:58

can't make consumers buy stuff they don't want to buy

01:02

For instance way back in the seventeenth and eighteenth centuries

01:05

the Brits saw China as a huge market to tap

01:08

so they tried to come up with all this stuff

01:10

the Chinese people would want to buy But the Chinese

01:13

people didn't want any of their British stuff They were

01:16

only interested in the silver which they were getting in

01:19

heaps since Britain was importing a ton of porcelain tea

01:22

spices and silks from China into Europe and depleting themselves

01:26

of silver we'LL supply siders The trickle Down Believers believe

01:31

the economy is driven by producers who are at the

01:34

top of the economic pyramid like they're going to produce

01:36

and whatever they produce consumers will buy How will the

01:39

economy grow if the people with all the money at

01:41

the top aren't investing it into creating and growing a

01:45

new businesses The logic is that the head honchos of

01:47

the economy I either job creators the entrepreneurs the investors

01:52

the visionaries They have a lot of money which can

01:54

be either well held onto or invested well The supply

01:58

siders theory is that if taxes are high then high

02:01

income earners are incentivized to well just sit on their

02:04

hands leaving their money to collect dust when it could

02:07

be doing something more useful But if taxes are low

02:10

on the other hand well then the producers are incentivized

02:13

to invest that wealth in the economy or at least

02:15

more incentivised and that in theory would create more jobs

02:18

and lead more spending and boost economic growth That's the

02:22

money trickle down theory from the high income earners to

02:25

low income earners Supply siders have a similar theory when

02:29

it comes to regulations on all this stuff like higher

02:32

capital gains and income tax on high income earners Business

02:36

regulations are seen by supply siders to be a disincentive

02:39

for that group to invest in economy well Likewise Supply

02:43

Sider see monetary policy as reigning on their parade Monetary

02:47

policy happens when a central bank tinkers with interest rates

02:50

and the money supply and hoping to balance unemployment and

02:54

inflation for supply siders the central bank is sticking their

02:57

sticky fingers into the natural functioning of the markets where

03:01

they don't belong Well the reason we have a central

03:03

bank tinkering with things that happens because well the norm

03:06

in macro economics today is a bastardized version of Kane's

03:09

Ian Theory Kane's Ian's our demand siders So when they

03:13

see the economy going into a slump from consumers having

03:16

the blues while then those Keane's Ian's think the solution

03:19

is government intervention including monetary policy tinkering right But on

03:23

the other hand supply siders say Kane's Ian's well have

03:26

got it all wrong At the end of the day

03:28

the market will always be a mix of both supply

03:31

and demand We'LL just keep letting that Adam Smithy and 00:03:34.558 --> [endTime] invisible hand you know do its thing at no

Up Next

GED Social Studies 1.1 Civics and Government
39794 Views

GED Social Studies 1.1 Civics and Government

Related Videos

Fake News
11938 Views

How do you tell fake news from real news?

Finance: What is Bankruptcy?
260 Views

What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...

Finance: What is a Dividend?
1777 Views

What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...

Finance: How Are Risks and Rewards Related?
589 Views

How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...