4.4.

1 definition of money supply and monetary

policy
4.4.2 monetary policy measures Changes in interest rates, money supply and foreign
IGCSE ECONOMICS Page 1 of 2
exchange rates.
GOVERNMENT ANDpolicy
4.4.3 effects of monetary THEonMACROECONOMY
government How monetary policy measures may enable the
macroeconomic aims government to achieve its macroeconomic aims.

4.5 Supply-side policy

Topic
4.5.1 definition of supply-side policy
4.5.2 supply-side policy measures
4.5.3 effects of supply-side policy measures on
government macroeconomic aims
Guidance
Possible supply-side policy measures include
education and training, labour market reforms, lower
direct taxes, deregulation, improving incentives to
work and invest, and privatisation.
How supply-side policy measures may enable the
government to achieve its macroeconomic aims.

Supply-side policies are long-term measures to increase the productive capacity

of the economy, leading to an outward shift of the production possibility curve.

Measures:
• Education and training
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• Labour market reforms
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• Lower direct tax
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• Deregulation
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• Incentives to work and to invest
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• Privatisation
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 IGCSE ECONOMICS Page 2 of 2
Some limitations:
• Time lags
• Environmental issues
• Can create inequalities
• Costs

Some advantages:
• Better resource allocation
• No burden on government budget
• Direct support of economic sectors important for growth

E ects of supply-side policy on government macroeconomic aims

• Economic growth

• Low in ation (stable prices)

• Employment (low unemployment)

• Healthy balance of payments

• Redistribution of income
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