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Keynesian vs Supply-Side Economics

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Use the AD/AS model to illustrate the Reagan administration's plan for economic recovery during the 1980's and what were the results? Contrast the nature of Keynesian tax cuts under Kennedy and Supply-Side tax cuts under Reagan.

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Solution Summary

Using the AD/AS model to demonstrate the differences between supply side (Reagan's) and Keynesian (Kennedy's) policies.

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The AS curve slopes upward, which gives it advantages. When the AS curve shifts out, it causes an increase in GDP and a simultaneous decline in the price level. Shifting the AD curve outward does not give us both of these results. While GDP increases, price level does as well.

To accomplish an outward shift in the supply curve, the Reagan administration enacted tax cuts and cut government spending as means to fund them. Tax cuts for business owners and the ...

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