Today we will study the policies favored by supply-side economists, supply shocks, and the theory of crowding out. Click here to download a PowerPoint on the topic (Chapter 34 Notes Page).
Mini-lecture: Supply-side Economics and Crowding Out
Assignments
Read Mankiw (Chapter 34) and watch the following videos.
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Formative Assessment (MCQ's): You will take a formal assessment during class. The assessment will consist of multiple-choice questions and one FRQ from an old AP Exam. Doing the problem of the day and ensuring that you understand it will help you prepare for today's formative assessment and help to ensure that you understand the concepts in this lesson.
Problem of the Day: Work cooperatively with another AP Economics student to construct a response to the following prompt. Complete the response in your notebook, NOTING WITH WHOM YOU WORKED.
Use an AS-AD graph to explain why supply-side economists believe that the crowding out effect decreases (or eliminates completely) the effectiveness of expansionary fiscal policy.
Use a graph (Laffer Curve) to explain why supply-side economists believe that tax cuts can cause tax revenues to increase.
Suppose a drought destroys farm crops and drives up the price of food. Use a Phillips Curve graph to show the effect of this drought on the short-run tradeoff between inflation and unemployment.
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