Demand-side Effects of Supply-side Policies

This topic explains how supply-side policies, while aimed at increasing an economy's productive capacity by improving the quantity or quality of factors of production, can also change aggregate demand in the short run. When policies change consumption, investment or government spending they can shift AD = C + I + G + (X - M), creating short-run increases in output and employment but also possible upward pressure on the price level. Understanding both the demand-side and supply-side effects is important for evaluating policy trade-offs.