Supply Side Policies

• Supply side policy - Any action by the government intended to increase the amount that firms are willing and able to supply at any given price level. A deflationary mechanism that effects the LRAS curve.
• The main evaluation point for a supply side policy is the time lag.
• If managed correctly, supply side policies can combine with fiscal and monetary policies to allow economic growth without inflation.
• Examples of supply side policies: Subsidies, privatisation, encouraging competition.
• Objectives of supply side policies:

  1. Improve the incentives to look for work
  2. Increase labour and capital productivity
  3. Increases mobility of labour and reduce unemployment
  4. Promote competition for faster innovation
  5. Provide a strong platform for non-inflationary sustained growth.
• Evaluation of supply side policies:

  1. Time lags
  2. increased externalities such as pollution if growth increases