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Unit 5: Supply Side Economics & Laffer Curve

Disinflation: Reduction in the inflation rate from year to year which can be seen in the long run Phillips Curve; also occurs when AD declines


Deflation: general decline in price level


Hyperinflation: when an economy experiences an unusual high rate of inflation


Supply Side Economics: Changes in AS not AD determines level of inflation, unemployment rates, economic growth; supporters believe it's best to lower taxes and decrease regulation; Reaganomics; lower tax rates provide positive work incentives and thus shift AS curve to right
Reaganomics: poor gets money last

Laffer Curve: depicts theoretical relationship between tax rates and government revenue; as tax rates increase from zero, tax revenues increase from zero to some maximum level and then decline; 3 criticisms: empirical evidence suggest that the impact of tax rates on incentives to work, save, and invest are small. Tax cuts also increase AD which can fill inflation; where economy is actually located on curve is difficult to determine; measuring Tax Rate and Government Revenue

Image result for laffer curve

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