‘’For the past 55 years or so, governmental economic policies have focused primarily upon the demand side of the economy, and this has resulted in the situation we now find ourselves in.
Demand-side policies are primarily short-run efforts that aim at getting an economy back to full-employment as fast as possible. As such, demand-side policies focusing upon reducing unemployment aim at putting workers back into the jobs that they held before they found themselves unemployed. Demand-side policies attempt to trade off a little inflation for higher levels of employment. As such, demand-side policies create credit inflations that produce financial engineering and innovation rather than business capital investment. We have seen the consequences of demand-side policies in a lower rate of labor participation and credit flows remaining within the financial circuit of the economy rather than going into the industrial circuit. The result is that unemployment, as it is currently measured looks good, but short-run programs of monetary stimulus and fiscal stimulus prove ineffective in terms of achieving higher rates of economic growth. In the future, the government must move to look more toward longer-term, supply-side solutions to the labor productivity and economic growth dilemmas.
Question: ''What do you believe will be the long term effects if aggregate demand policies are used vs. aggregate supply policies?''