Macro Economics - Supply Side Options Essay Example | Topics and Well Written Essays - 750 words

Macro Economics - Supply Side Options - Essay ExampleClassical economists therefore rivet on endogenous write out-side causes of unemployment and will prescribe policies that affect the inwardness supply of labor such as reducing information asymmetries and removing constraints on workers mobility to lower unemployment in the long-run.On the other hand, Keynesian economists view the labor market in the short-run assuming fluctuations in the economy the Keynesian center supply wrick is horizontal where wages are sticky and not everyone in the labor force finds jobs. Thus, Keynesian unemployment is demand-driven and caused by variables exogenous to the labor market, such as scotch recessions and decreases in output that alters aggregate demand causing disequilibrium. Keynesian economists who give importance to exogenous demand-driven causes of unemployment will therefore prescribe expansionary fiscal policies to stimulate aggregate demand such as increasing government expenditure s and inducing consumption to restore equilibrium and lower short-run unemployment.Supply-siders focus on managing aggregate supply to stabilize short-run fluctuations, and affix output in the long-run. They begin with the implications that without structural policies to change over the aggregate supply curve outward, fiscal policies focusing on demand-effects cannot increase aggregate output in the long-run because of crowding-out effects while at the same time causing inflation because despite the shift in the aggregate demand curve, the crowding-effect causes excess demand, thereby increasing prices. However, since structural policies are difficult to implement, supply-siders emphasize the supply-side effects of fiscal policies assuming that aside from demand-effects, fiscal policies have heavy supply-side effects, which can shift both the short-run and long-run aggregate supply curves to the right, offsetting inflationary pressures while increasing aggregate output. Hence, su pply-siders would advocate fiscal policies that reduce taxes poignant the labor force, such as an income tax cut because of its ability to stimulate aggregate supply by providing laborers greater incentives to work thereby increasing over-all productivity. Furthermore, the shift in aggregate supply offsets inflationary pressures in the long-run, such that if the supply curve shifts far enough, aggregate output can increase without increasing prices. interview 3In reaction to Keynesian prescriptions that governments must take an active policy role in stabilizing the economy, Monetarists take a more dormant stance regarding economic policy, advising that the Fed must simply allow money supply to grow at a constant regularize, and make adjustments only if the rate which the full employment economy grows deviate from nominal targets. Hence, Monetarists prefer rules-based policy regimes as opposed to discretionary ones, where the margin for error is larger. The rationale for Monetaris t prescriptions lies in the supposition that the economy is inherently stable, wherein disruptions within the economy are caused by wrong economic policies. Monetarists argue that the economy is better-off if policymakers, with their limited abilities, refrain from fine-tuning the economy. They emphasize the time lags hold in implementing economic policie