The problem of stagflation encountered by USA and UK during the seventies and early eighties when both high inflation and high unemployment prevailed simultaneously did not admit for easy solution through the Keynesian demand management policies, it only worsened the situation.
Against this backdrop, the alternative school of thought, about macroeconomics laid stress on Supply Side of macroeconomic equilibrium, that is, it focused on shift in the aggregate supply curve to the right rather than causing the shift in the aggregate demand curve. Thus Supply side economics prefers to solve the problem of stagflation through the management of aggregate Supply rather than the management of aggregate demand. Further Supply Sides economics stresses the determinants of long run growth instead of causes of short run cyclical movement in the economy. Supply Side economists laid emphasis on the factors that determine the incentives to work, save and invest, which ultimately determine the aggregate supply of the output of the economy.
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