Better known as Reagonomics since it was espoused by Ronald Reagan, trickle-down economics or supply-side economics is the main reason why governments give large tax cuts to investors and corporations. According to Supply-Side  Economics, to pump prime the economy, one has to give tax cuts since the money saved by these companies or these investors will eventually “trickle down” to the people and the people will have more buying power.

This macroeconomic theory has three pillars, one is tax policy, the second is regulatory policy and the third is monetary policy. The idea behind these pillars is supply of either goods or services. Supply, being the most important determining factor for economic growth, according to this theory, should be increased instead of increasing demand first. This theory somehow contradicts the law of supply and demand and the exact contradiction of the Keynesian theory which focuses itself on the demand in the market.

According to the Keynesian Theory, the biggest economic driver is demand and not supply. Supply-siders however would say that those who produce goods or render services and their willingness to create these goods and services are key determinants in how the market works. But isn’t it that the price of goods usually go down when there is too much supply? According to supply-siders, supply-side economics can set the pace for a country’s economic growth. Period. For those who really want to understand the crux of this theory, one should read more books about it.

More Articles :

• Definition Of Supply Side Economics
• Economics Of World Countries
• Effects Of Supply Side Economics
• History Of Supply Side Economics
• Understanding Supply Side Economics
• What Is Economics ?