Supply Side Policy

• Supply side policies are economic measures that aim to improve the long run productive capacity and efficiency of an economy.
• Supply side policies are shown through:

  • A shift in the LRAS
  • A outward shift in the Production Possibility Frontier (PPF)
• 20% of the working age population, are inactive. This could be due to household work, pensions or side hustles.
• The UK has low R&D spending, low investment and economic inactivity.
• The trend growth refers to long term non-inflationary increase in GDP over time.
• Interventionist Supply Side Policies include spending on:

  • Education and Training
  • Healthcare
  • Infrastructure and improvements on merit goods
  • Minimum wage to improve incentives.
• Market Based Supply Side Policies include:

  • Tax cuts (corporation and income)
  • Cutting red tape (paperwork for businesses)
  • Privatisation (encourages profit driven businesses)
  • Flexible labour markets (full time, part time, zero hour)
• Supply side policies reduce demand pull inflation.
• Reducing the power of trade unions is a supply side policy because it forces them to work and there is less disruption to production.
• Reducing state welfare benefits reduces the incentive to stay on them. People look towards work for better standards of living.
• Immigration reforms are a supply side policy. It attracts high skilled workers and increases the supply of labour. Firms have a greater pool of workers to choose from which increases the country's productive capacity.
• Criticisms of Market Based SSP include:

  • Income inequality through tax cuts
  • Less social safety nets by cutting benefits
  • Market failures and externalities such as pollution
• Criticisms of Interventionist SSP include:

  • Crowding out the private sector. Public control of industries may reduce private investment and entrepreneurship.
  • Reduced incentives through high regulation and privatisation. Workers lose motivation to work to full potential.