Supply Side Policies What Are they

Supply Side Policies

What Are they? • Supply Side Policies are policies which are designed to increase the ‘productive potential’ of an economy • They tend to be associated with the right of the political spectrum • However governments of any colour may use them!

What do they set out to do • They hope to achieve an increase in Long Run Aggregate Supply • As shown in the diagram

What is a supply side policy • Improvements to Education – Increases productivity and quality of the Labour force • Tax Cuts – Encourages an increase in supply of labour, incentive to work • Cuts to Corporation Tax – Attempts to stimulate investment from business

What is a supply side policy • Deregulation – Aims to increase efficiency as business spends more time doing business than red tape • Privatisation – Makes firms more efficient as they are ruled by Market Forces, inefficient firms go out of business • Cutting Benefits – Encouragement to work

What is a supply side policy • Curbing powers of Trade Unions – If power is reduced it lowers demands for wage rises and makes workers more flexible in working

Evaluation of Supply Side Policies • SSPs will alter the economy in the long term • Classical and Keynesian Economists disagree on the approach to them • Classical Economists want a free market approach • Keynesians look for a more interventionist approach