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

Macro Economics - Supply Side Options - Essay ExampleClassical economists therefore pore on endogenous supply-side causes of unemployment and will prescribe policies that affect the hoard supply of pains such as reducing information asymmetries and removing constraints on workers mobility to note unemployment in the long-run.On the other hand, Keynesian economists view the labor market in the short-run assuming fluctuations in the providence the Keynesian sum supply frizzle 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 economic recessions and decreases in output that alters aggregate demand cause 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 increase government expenditures and in ducing consumption to restore equilibrium and lower short-run unemployment.Supply-siders focus on managing aggregate supply to stabilize short-run fluctuations, and ontogeny output in the long-run. They begin with the implications that without morphologic policies to coggle 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 slopped 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, supply-s iders would advocate fiscal policies that reduce taxes affecting the labor force, such as an income tax sting 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.Question 3In reaction to Keynesian prescriptions that governments must(pre tokenish) take an active policy role in stabilizing the economy, Monetarists take a more static stance regarding economic policy, advising that the Fed must simply allow money supply to grow at a constant rate, 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 Monetar ist prescriptions lies in the arrogance 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 present in implementing economic policie