Supply-side and Keynesian economics – Flashcards

A theory which states that capitalism should be regulated by the government and that the government should increase spending to boost aggregate demand during recessions and reduce spending during booms.

A theory that postulates A separation of the state and the capitalist economy. Advocates for a reduction in government spending and regulation of the market and businesses.

A belief that high inflation is always as a result of too fast increase in the money supply. Meaning too much demand for not enough supply. E.g. Too much money chasing too few goods.

Keynesian and supply-side economists differ as to how to correct market failures and the negative externalities which emerge as a result. Keynesians advocate for government intervention through regulation and indirect taxation. Supply side economists prefer to not have government intervention in the market.

Opposed to government regulation. Think that a market left when left alone will self-regulate. For example a business that is responsible for excessive pollution will go out of business as a result of public pressure. They argue regulation harms the people that it's meant to protect. E.g. the minimum wage causes unemployment because workers who're not worthy of that wage will never be hired.

Believe that regulation is necessary to correct market failures and to "save capitalism form itself". E.g. the Glass- Steagall Act (1933) that stopped commercial and investment banks from merging to prevent banks from engaging in excessively speculative activity.

The Gold Standard refers to a system where the currency is backed by a commodity. E.g. Gold. The majority of supply-side economists are pro gold standard because they believe as long as a country uses the gold standard it's not possible to print excessive amounts of money to fund government programmes. This stops the state from rapidly devaluing the currency and also prevents them from taking on too much debt.

Stops government from printing money / prevents inflation and a high level of debt

Prevents growth in an economy, E.g. if the government is unable to print money then they might not be able to spend as much as they would like.

Money that has value due to a government decree rather than being backed by a commodity. Fiat is latin for "It shall be."

Allows the government to spend money as required on programmes that it deems to be valuable. Gives the government more control over the economy.

Allows the government to accumulate massive amounts of debt. Gives the government more control over the economy.

It would be difficult to transition from the existing Fiat Money back to a Gold standard, especially if other countries did not do the same. (add more)

A regulation set by the government that states that business can't pay their employees lower than the specified amount.

Increases aggregate demand / can create a happier more productive workforce / some say it can reduce wealth inequality / some argue it can reduce unemployment

Some say it can increase unemployment (for example youth employment in the US spiked after the introduction) Government interference in the market / doesn't allow the market to set a fair wage / Imposes a cost on government to regulate / creates national inequality (E.g London living allowance)