Innovation & Economic Growth What promotes innovation?

Innovation & Economic Growth

What promotes innovation?

GDP GDP GDP

What creates Long Term Economic Growth?

INCENTIVES MATTER!!!

Supply-Side Economics

• Orthodox macro theory consists of demand-oriented theories– they failed to explain stagflation (late 1970s)

• Supply-side economists believe the problems were high rates of taxation & heavy regulation:– This had reduced the incentive to work, save and invest. – What was needed was not a demand stimulus – Incentives are needed to stimulate supply.

What isDe-regulation?

Supply-Side Policy

• Basic Belief: Government Incentives Matter

• Goal: use incentives to shift the aggregate supply curve right– Note: When PPF shifts right => AS shifts right

• The supply-side toolbox consists of:– Tax cuts to stimulate work, saving, and investment

– Deregulation to reduce production cost/stimulate investment.

– Expenditures on education training/research expands capacity to produceCars

TechnologyGoods

. B

100

100

----------

----

----

---50

50

United States

LRAS1PriceLevel

RealGDP

AD1

SRAS1

P1

Y1

E1-----------------

Innovation & GDP GrowthCars

TechnologyGoods

. B

100

100

----------

----

----

---50

50

United States LRAS1PriceLevel

RealGDP

AD1

SRAS1

P1

Y1

E1-----------------

Innovation

http://www.youtube.com/watch?v=BRAh4YemS0k

Bark People => please watch this video

Innovation:Creating Jobs?

U.S. EconomyLRAS1Price

Level

RealGDP

AD1

SRAS1

--------------------

P1

Y1 Y*

E1

Innovation & USA

• Financial Capital is needed to start a new businesses– Without money => ideas can’t become reality

– Venture Capital Firms lend money to startups

• Ideas for a new business easily raise money in USA– Google, Apple, Microsoft, Facebook, Bloomenergy etc…

Recent IPO’s

Public School System

Movies on Charter Schools

Innovation in Schools?Charter School

Practice Test