Comparing Supply-Side and Keynesian Economics Problem: Economic Recession Consumer demand for goods and services decreases, and the nation's factories and businesses reduce their output, resulting in an overall slowing of the economy. Keynesian government response Supply-side government response The government itself increases The government cuts taxes in order to encourage consumer spending on goods and services spending as well as consumer saving and investment. in order to increase demand and Savings and investments are borrowed by creative encourage economic output entrepreneurs to grow their companies by creating new by factories and businesses. products and services. Goal: Economic Recovery Employment increases, consumer demand for goods and services increases, and economic output rises, resulting in an overall recovery of the economy. SOURCE: Pearson (2013) 2 What do Keynesian and Supply-Side economics, also called "Reaganomics," have in common? IF They both favor cutting taxes. G They have nothing in common. H They both have the goal of economic recovery. I They both favor increased government spending