Understanding Different Types of Economic Policies

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Economic policy refers to the actions that governments take in the economic field. There are different types of policies such as; supply-side, demand-side, and monetary policy.

To begin, the supply-side policy can also be known as "Reaganomics". It has been given that name from the 40th president, Ronald Reagan. A credible site explains, "He popularized the controversial idea that greater tax cuts for investors and entrepreneurs provide incentives to save and invest, and produce economic benefits that trickle down into the overall economy." In general, the supply-side policy has three pillars; tax, regulatory, and monetary policies. The supply-side theory is typically held in contrast to Keynesian theory which, among other facets, includes the idea that demand can decrease, so if lagging consumer …show more content…

The demand-side economics is based on a belief that the main force affecting overall economic activity and causing short-term decreases is consumer demand for goods and services. A reliable source describes, "At the core of demand side economics is the focus on aggregate demand. Aggregate demand is the combination of consumption of goods, industry investment in capital goods, government spending and net exports. When other elements of aggregate demand are weak, the government can mitigate their impact by increasing its spending. The government can intervene to generate demand for goods and services." The people who believe in the demand-side also believe that there should be high government during high recession points to overcome a short-term low aggregate demand. Increasing the aggregate demand will reduce unemployment and encourage economic activity, according to this theory. The government rises demand through spending on public goods and services as well as through its control of the money supply through changing interest rates or exchanging on government-issued

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