Comparison Of Supply-Side Economics And Milton Friedman's Economic Theory

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British economist, John Maynard Keynes, and American economist, Milton Friedman, are considered the two most influential men in macroeconomics, particularly of the last century. Both men met economic crisis that set a precedent in economic theory and crisis that had never been addressed before by the global market. They managed to create working macroeconomic theories that addressed the need for governmental regulation for the former and a lack of governmental regulation for the latter, respectively. The economic theories would both carry different approaches for how the United States government should address regulation in hopes of stimulating the economy and bringing the economy back to equilibrium. Either could be used as an appropriate …show more content…

The combination of inflation and falling aggregate output is officially known as stagflation , and the United States at the time was certainly seeing both after the boom from World War II and the Baby Boomer generation that came immediately afterwards with the results of the recovering economy from Keynesian economics. Keynesian economics did not factor that inflation and unemployment were able to occur simultaneously, which was considered the Achilles heel of the theory. Friedman and the monetarists, economists that believe an economy’s performance is determined through changes in the money supply, realized that people learn from their mistakes and develop as a result, this was popularly referred to as, “rational expectations, expectations that are built on the lessons of the past .” Friedman believed that the solution to unemployment did not lay with the government policies which attempted to control inflation and unemployment through changing government expenditures and taxes, or fiscal policy, which had the effect of influencing the demand for goods and services. Friedman’s Supply-Side policies involved lowering taxes and decreasing government regulation, it functioned under the principle that with lowered taxes, consumers would be able to benefit from goods and services, which would stimulate the economy and bring employment back up. It …show more content…

Keynesian Economics and governmental regulations were an understandable approach at the time, because it became necessary to involve the government in actively participating in controlling the economy, rather than seeing if the economy would readjust itself over time. In modern times, fiscal policy comes across as being the implementation of Keynesian theory while not necessarily being at odds with the monetary theory that led to Supply-Side Economics. Supply-Side Economics removed governmental regulation to stimulate demand in the economy which is still in practice in the present, Supply-Side is especially profound because it takes into account the fact that individuals can learn from their previous mistakes or experiences. This has made it particularly popular for most countries that deal with open market

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