Topic 13: Supply or Demand?

Demand-side policies are those which aim to provide incentives to increase aggregate demand. This may include tax reductions, decrease in interest rates, etc. which either increase consumers’ disposable incomes or encourage spending rather than saving. Supply-side policies are those which aim to provide incentives to increase aggregate supply. This includes deregulation, tax reductions for companies, etc. I believe that demand-side policies are more effective. These policies directly impact the buyers, who are keeping the economy flowing. Supply-side economies, although supplying a lot of goods and services, would ultimately be useless if the consumers don’t have the purchase power. Moreover, supply-side policies, which may grant more deregulation, would sometimes cause wage inequality, monopolies, or job insecurity. These are bad for the economy. Also, arguably, for both types of policies, this decreases government revenue as taxes are cut. However, many may also argue that supply-side policies which encourage production actually generates economic growth, or even an actual increase in government revenue as production rates increase. It also allows for more efficient and non-interference style of market. For demand-side policies, it includes a lot of government intervention and specific allocation of government resources to benefit the society. The decrease of taxes, though “taxing” on the government, is beneficial to people as it allows them to be able to spend more money, allowing suppliers to provide more, and therefore stimulate the economy. The same could be said with decreased interest rates which urges people to spend, and therefore, again, stimulate the economy. Therefore, this benefits both the demand and supply side. However, many also argue that this cannot help with long term aggregate demand, and can only help for a short while. This also costs a lot of money for the government.