2.6.3: Supply-Side Policies

Aggregate supply

Total planned national output at a given time and price level.

Free-market policies

Policies to increase competition such as deregulation and open trade

Interventionist policies

Involve interventions to overcome market failure(s) that might limit supply-side potential

Hysteresis

When a sustained period of low aggregate demand can cause permanent damage to the supply side

Long run aggregate supply (LRAS)

Productive potential determined by technology, productivity, factor mobility and economic incentives

Shocks

Unexpected events that can affect both aggregate demand and supply

Deregulation

Reducing barriers to entry to make the supply-side of an industry more competitive

Labour market flexibility

Market for people with many short term job contracts and unpredictable earnings

Privatisation

Selling state-owned assets to the private sector e.g. the Royal Mail

Zero-hours contract

Workers employed without any guarantee about the amount of work they will have

Trade liberalisation

Lowering import tariffs and eliminating quotas to increase competition

Income tax cuts

Lowering direct taxes to improve work incentives and productivity

Labour productivity

Measures efficiency e.g. GDP per hour worked or per person employed

Infrastructure

Investment in telecoms, housing, rail, ports, roads, energy and other utilities