Supply-side policies

Aim to expand the productive to entail of an economy.

Involve making structural changes to the economy, to work more efficiently and more
productively.
Right ward shift of LRAS or SRAS.

Interventionist supply-side policies

Presuppose that free market economy cannot by itself achieve the desired results in
terms of increasing potential growth.
Investment in human capital
Training and education.
Assist workers to become more employable. Reduce structural unemployment.
Assist young people to pursue training and education through grants or low
interest rate loans.
Offer subsidies to hire structurally unemployed.
Provide information
Improve healthcare service.
Workers are healthier more productive.
Improvement in quality of labor resources.
Industrial policies
Designed to support growth of industrial sector of an economy.
Support for SMEs.
Encourage growth of SMEs to promote efficiency
More employment possibilities
Support infant industries.
Grants, subsidies, tax exemptions, tariffs.

Market-based supply-side policies

Classical economists - emphasize the view that growth in real GDP depends on supply
side of economy.
1. Encouraging competition
Privatization. Transfer of ownership of firm from public to private sector. Increase
efficiency, reduce bureaucracy.
Deregulation. Elimination/ reduction of government regulations of private sector
activities. Either economic or social.
 Economic - control of prices/ output/ activities of firms, protection against
competition. To force firms to face competition and increase efficiency.
Social - protecting consumers against undesirable effects of private sector
activities. Most of the time social regulations are strengthened to protect consumer
interests.
Private financing of public sector projects.
Private financing initiatives. Buy stuff from private firms, to increase competition
and efficiency.
Trade liberalization. Reduce trade barriers, promote competition globally.

> Strengths and weaknesses

Economic growth
Designed to increase rate of growth. Push the LRAS even further, high productive
potential growth of economy.
Extra productive potential is dependent on success of policies
Inflation
Reduces price level. (Assumes aggregate demand is constant) However, AD will also
be increasing as economy grows.
There will be no inflation overall.
To meet inflation target - has to push LRAS at a slightly slower pace than increase in
AD.
Unemployment
Supply-side policies on their own may not guarantee low unemployment. Unless
there’s a larger increase in AD
Because if short-run equilibrium output is below full employment level, increasing AS
will not help achieve full employment (because of AD).

#School/Economics