eco - supply side policy

what does the supply side policy aim to do?

aims to increase the total supply of goods and services

what are the 8 ways in which the supply side policy can achieve its aim?

1) improve education and training

2) lowering taxes and increasing incentives

3) deregulation

4) privatization

5) Labour market reforms

6) Subsidies

7) promoting infrastructure development

8) support for technological improvement

how does improving education and training increase the total supply of goods and services?

• increases skill and makes workers more productive

• higher labour productivity decreases cost of production

• better trained workers are more likely to move to other parts of the country

• training must take place by govt in areas where there is a demand for the goods

how does lowering taxes and incentives increase the total supply of goods

• lower income tax = people want to work for more hours

• lowering social welfare - forces people to look for work

• cutting buisness tax will encourage forms to invest in factories etc since they keep more profits

how does deregulation increase the total supply of goods

• it makes it easier for firms to obtain business licenses

• allows more firms to enter the market. (more competition)

how does privatization increase total supply of goods

converting govt owned organisations into private sector businesses so they will be profit motivated and supply will rise

how does labour market reforms increase total supply of goods

• seeks to improve labour market efficiency - improves quantity, quality and labour flexibility

• easier to hire and fire workers - supply rises

how does promoting infrastructure development increase total supply?

• good quality infrastructure, transport and power keeps the cost of firms low and enables then to get the products the the market quickly

• improving rail networks means the cost of transport goes down

how does support for technological improvement increase total supply?

govt can support uni’s by providing subsidies to research development of new tech that will lower cost of production

what is the impact of supply side policy on national income and real output?

it increases them

what is the impact on the price level from ss policies

overtime AD tends to increase

if aggregate supply can keep pace with higher AD, a country can enjoy higher output without experiencing demand-pull inflation

what is the impact of ss policies on employment

• improved education and training increases workers skills

• reducing frictional and structural employment

• machines will replace people

what is the effectiveness of ss policies

Long run - spending on education and training is very effective

in the the short run it may contribute to inflation - this is bc increased spending may increase the AS

what is the aim of the supply side policies

to increase productive capacity of an economy