Supply-side Policy

• What is supply-side policy?

  Long-term strategies aimed at increasing the productive capacity of the economy by improving the quality/quantity of factors of production
• Supply-side policy measures:

  • Education and training
  • Labour market reforms
  • Lower direct taxes
  • Deregulation
  • Incentives to work
  • Incentives to invest
  • Privatisation
• What is deregulation?

  Aims to make markets more competitive by removing barriers to entry and market imperfections
• What is enterprise zones?

  Locations with high unemployment, which are targetted by the government as areas in need of support by creating financial incentives to relocate
• What is labour market reforms?

  Makes labour markets more flexible, resulting in greater productivity
• Effects of supply-side policy on economic growth:

  • Increases productive capacity
• Effects of supply-side policy on full employment:

  • Increase in economy's productive capacity results in increase in national output
  • Creates more jobs in thee long run
  • help reduce frictional and structural unemployment
• Effects of supply-side policy on stable prices:

  • Prevents general price from rising beyond control
  • Measures increase productive capacity of the economy, resulting in economic growth without higher prices
• Effects of supply-side policy on balance of payments stability:

  • International competitiveness improves as general price level doesn't rise
  • Boosts economy's export earnings
• Effects of supply-side policy on redistribution of income:

  • Benefit low income earners