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