Supply side policies

Supply side policies: policies designed to increase AS by improving effiency of labour and product markets 

If supply side policies are successful, they will increase productive potential; help prevent inflation; reduce structural unemployment; reduce frictional unemployment; improve the country's trade position

Examples of supply side policies:

• Education and training: government investment in education and training should raise the occupational mobility of labur and labour productivity

Human capital: education, training and experience that a worker, or group of workers, posesses.

A04: increased spending on education does not mean better quality of education

• Government assistance to new firms: new firms develop entrepreneurial skills, but may find it difficult to break into established markets. A government may help by providing them with grants/ low corporation tax

A04: government needs to decide how long to help new firms

• Reduction in direct tax: lower direct taxes increase incentives to firms, worker and potential workers. A cut in corporation tax will increase both funds to invest and funds from return on investment taken. If investment increases productive capacity will rise.

Cut in income tax may incentivise people to…