Supply-side Policy

• Supply Side Policy - policies that aim to increase productivity and efficiency in the economy (increase aggregate supply)

  • Improve Education
  • Cut direct taxes
  • Decrease benefits
  • Privatisation
  • Deregulation
  • Subsidies
• Improved Education and Training:

  • Higher skill labour is more efficient = more productive.
  • Higher skill labour is more occupationally mobile = easier to respond to changes in demand
• Cutting Direct Taxes:

  • Reducing income tax could encourage people to seek work as they will make more money
  • Reducing corporation tax could encourage firms to invest and expand as they will have more profit
• Decreasing Benefits:

  • Cutting benefits to the unemployed could encourage them to seek work and join the workforce
  • Could lead to a fall in demand if unemployed unable to find work
• Privatisation - seeks to increase competition which should make firms more efficient (responding to consumer demand with quality products)

  • May not consider social costs and social benefits
• Deregulations - removal of rules and regulations (changing laws/limit government influence) in order to increase competition.

  • Remove barriers to enter a market
  • Reduce the cost of following the rules / regulations
• Subsidies -  payment by a government to encourage the production or consumption of a product

  • Help new firms get established (increase competition)
  • Help firms buy new capital goods (increase production)
• Point of Supply Side Policy - encourage economic growth in a non-inflationary way by increase aggregate supply

  • Increase in supply = decrease in price