supply-side policy

supply-side policy

a policy that helps to increase a country’s productive potential

types of supply-side policies

education/training , lower direct taxes on individuals and firms , less power to trade unions, privatisation, deregulation , investment in infrastructure

how can education/training increases a country‘s productive capacity

increases human capital - workers are more skilled and efficient

how can lower direct taxes on individuals and firms increases a country‘s productive capacity

incentivises individuals to work or work for longer , firms have more money to invest into productive capacity

how can less power to trade unions increases a country‘s productive capacity

makes it easier for firms to pay lower real wages reducing costs and increasing supply

how can privatisation increase a country’s productive capacity

privatisation may lead to greater efficiency and innovation and increase production

how can deregulation increase productive capacity

make it easier to produce goods and services

how does investment in infrastructure increase productive capacity

improve transport and communication networks and reduce costs for firms and increase their efficiency.

impacts of supply side policy

• increased economic growth

• reduced inflationary pressure

• increase employment

• improve balance of payments

negatives of supply side policies

• takes considerable amount of time to work

• expensive - opportunity costs

• unequal benefits

• possible negative effects