SupplySide Policies

• Supply-side policies


  Policies designed to increase the productive capacity of the economy and thus shifting the long-run aggregate supply (LRAS) curve to the right
• If supply-side policies are successful

  All four main macroeconomic objectives will improve
• Supply-side policies


  • Target the types of unemployment in the natural rate (frictional and structural unemployment)
  • Aim to reduce long-term rates of inflation
  • Aim to improve the current account position and trade competitiveness
• Types of supply-side policies

  • Interventionist supply-side policies
  • Market-based supply-side policies
• Interventionist supply-side policies


  Policies that promote more of a role for the government in the economy to try and boost LRAS
• Market-based supply-side policies


  Policies that reduce the role of government in the economy, take away the government from the operation of markets, and let markets be freer
• Interventionist supply-side policies


  • Government spending on education and training
  • Government spending on healthcare
  • Government spending on infrastructure
  • Subsidies to firms to promote investment
• Market-based supply-side policies


  • Tax reforms (lower income tax, lower corporation tax)
  • Labor market reforms (reduction in benefits/welfare payments, reduction in minimum wages, reduction in trade union power)
  • Competition policies (privatization, deregulation, trade liberalization)
• The three generic reasons why the LRAS curve will shift to the right are: an increase in the quantity of factors of production, an increase in the quality of factors of production, or an improvement in the productive efficiency in the economy (a reduction in long-run costs of production for businesses)
• If a firm increases advertising

  The demand curve shifts right, increasing the equilibrium price and quantity
• Marginal utility


  The additional utility (satisfaction) gained from the consumption of an additional product
• If you add up marginal utility for each unit you get total utility