W. Jorgensen, is a car company owner who is currently facing a problem of having a high cost as the price of oil has risen. In order to help him, we must use either a demand side policy or a supply side policy thinking with either Keynes’ or Hayek’s mindset.
First of all:
- Supply side policies aim to increase the aggregate supply. (AS) In other words, the policy aims to shift the AS curve to the right.
- Demand side policies aim to increase in the aggregate demand. (AS) Similarly to the supply side policy, they also aim to shift the AD curve to the right. [AD=C+I+G+(X-M)]
My thought on this is, by decreasing the business tax for the company, the company be able to use a larger portion of their budget on producing their products. (car) This solution is a fiscal policy, that will affect the AS curve. (The AS curve will shift to the left)
Mana's Blog 
May 13th, 2011 at 8:07 am
A good solution but you need to consider the opportunity costs of this decision. What about other stakeholders in the economy. How will you ensure that business will use the extra money they have to do as you hope?