They believe that changes in aggregate supply are active forces in determining the levels of both inflation and unemployment. Economic disturbances can be generated on both the supply side and the demand side of the economy. They also contend that certain government policies have reduced the growth of aggregate supply over time, and if these policies were reversed, the economy could achieve low levels of unemployment without producing rapid inflation.
-Supply-siders also say that the US tax-transfer system has “eroded” productivity and decreased incentives to work, invest, innovate, and assume entrepreneurial risks. If taxes were decreased, people would have more money after taxes and they would have more of an incentive to work.
-Supply-siders also believe that reductions in marginal tax rates increase aggregate supply. They believe in the Laffer Curve, which says that up to a certain point in tax rate, tax revenue increases, and at that point, tax revenue is a maximum. However, when taxes go past that point, tax revenue starts to decrease again. Criticisms of the Laffer Curve include 1) evidence that tax cuts don’t necessarily increase incentive to work, 2) inflation might still occur because AD might overwhelm AS, and 3) no one knows where we are on the curve