ECON 2105 Lecture Notes - Lecture 22: Pell Grant, Aggregate Demand, Income Tax
Document Summary
Traditionally, fiscal policy focuses on moving aggregate demand. However, there can also be supply-side fiscal policy: Use government spending and taxes to affect the supply side of the economy. Shifts in the lras are caused by changes in resources, technology, and institutions. Policies often take time, so supply proposals are emphasized as long-run solutions for growth. Fund r&d to expand technology and/or establish institutions that foster long-run growth. R&d tax credits: gives firms an incentive to spend resources on technological advancement. Policies that focus on education: subsidies or tax breaks for education (like pell grants) create incentives to invest in education, increasing effective labor resources. Lower corporate profit tax rates: provides increased incentives for corporations to undertake activities that add more profit. Lower marginal income tax rates: create incentives for individuals to work harder and produce more, since they get to keep a larger share of their income. Some politicians consistently call for tax cuts, even with large deficits.
