supply side policies -- interventionist

supply side policies definition

refers to measures aimed at increasing the long run AS (LRAS) , hence achieving economic growth and growth in potential output

goals of supply side policies

Aims at long run economic growth and employment , without increasing inflation. Avoids a trade off between government macroeconomic aims

when LRAS increases

1. the original equilibrium is at E1 where PL1 intersects Y1

2. implementing SS side policies would shift the LRAS curve to the right from LRAS1 to LRAS2 , resulting in higher level of real output and lowering APL (state from where to where)

interventionist supply side policies

based on the idea that the government plays a fundamental role in actively managing macroeconomic issues. Gov intervenes in the economy to directly increase the productive capacity of the economy.

4 main categories of interventionist supply side policies

1. investment in human capital

2. investment in infrastructure

3. investment in new technology

4. industrial policies

investment in human capital

refers to an increase in govt spending on training , re-training and education , improved access to healthcare services

• goal : improve quality / productivity of labour or reduce structural UE to boost economic growth

investment in human capital RWE

Singapore SkillsFuture Programme – Singapore launched SkillsFuture in 2015 to encourage lifelong learning and allow Singaporeans to develop industry-relevant skills through education. The government provides subsidies to those over the age of 25,  reducing the cost of training. Hence , more workers are willing and able to upskill and reskill , increasing their productivity. Such an improve in quality of labour shifts the LRAS to the right , increasing Singapore’s productive capacity

infrastructure definition

refers to large scale physical capital , usually provided by the government , that is necessary for economic activity to take place

investment in infrastructure RWE

Singapore MRT expansion — The Singapore government invested heavily in expanding its MRT network, including the Thomson-East Coast Line, to improve connectivity between different areas. By reducing travel times and increasing labour mobility, workers can access jobs more easily, increasing productivity and output per unit of labour. Therefore, the economy's productive capacity increases, causing a rightward shift of LRAS.

investment in new technology

• involves government spending on research and development

• outcome : keep up to date with modern development , develop new production techniques , improve its production methods , raise quality of physical capital , increase productivity of labour workforce

investment in technology RWE

The Singapore government provides financial support through the Productivity Solutions Grant to encourage firms to adopt digital technologies and automation, Around 36,400 companies received PSG support, with an average grant of 6.6k per project. An MTI study found that firms receiving PSG grants experienced a 3.0% increase in productivity. By enabling firms to adopt technology, workers can produce more output in the same amount of time, increasing output per unit of labour and productive capacity, causing a rightward shift of LRAS.

industrial policies goal

refers to policies intended to promote a specific industry

• EG : help small medium enterprise to grow / support infant industries / support industries that are important for growth

industrial policies RWE