explain supply side policys

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1. explain supply side policys -what it is -its porpose -what shifts the LRAS curve -keynsian and classicals shool of thought about this

please tell me i need to know it for my exams

-- zeezal patel (zenal16@hotmail.com), April 22, 2002


As a test-taking strtegy I would say your professor is probably looking for a "regurgitation" answer, so if you missed it in class your SOL.

The fact that s/he asked the question indicates you have probably been learning from the IS-LM-FE model. We supply-siders ahve not repalced it but we find the IS-LM-FE model anyting from crude to ridiculous.

Moreover neither hard-core supply siders nor austrian classical economists like myself do not beleive that the LRAS exists, or at least that it cannot be drwn in a meaningful way. that would be like trying to draw a single Philips curve (plotting the relation between unemployment and inflation) for the 1970's. Can't be done. the curve shifted and pivoted too frequently and we kept moving along it.

But your prof is probably not looking for that answer. here is the answer s/he probably does want.

From Abel and Bernanke 2001, p383 "Any factor that increases full employment output Ybar shifts both the short-run and the long-run AS curves to the right. Factors that increase the full-employment output include supply shocks or an increase in labor supply. . ."

Such factors that shift the FE are the factors that shift the IS-LM curves they include an increase in wealth, an increase in expected future output (although that is actually a demand based shift), a reduction in taxes (assuming no Ricardian equivalence), an increase in MPK.

Hope that helps ~Bob

-- bob hyneman (bobhyneman@bigfoot.com), April 25, 2002.

SORRY about all the typos in that last one.

It will not happen again.


-- bob hyneman (bobhyneman@bigfoot.com), April 25, 2002.

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