Supply Side Policies:
Supply-Side policies: measures intended to have a direct impact on long run aggregate
supply and the potential capacity output of the economy.
Market-based SSPs: policies that rely on allowing markets to work more freely and reduce
the role of the government to provide incentives for enterprise and initiative
Interventionist SSPs: policies by which the government intervenes to stimulate aggregate
supply.
Benefits of SSPs:
● Non-inflationary economic growth
● Lower unemployment
● Improved trade and balance of payments
position - firms become more competitive so they
can export more.
Market Based SSPs:
● Privatisation: this is when industries which have previously been in public ownership
(to prevent consumers from being exploited) are taken into private ownership. In
publicly owned enterprises there is generally much inefficiency as there is not
enough accountability of managers to their shareholders. When managers become
accountable to shareholders, efficiency increases as there is now the motive of it
profit maximisation. Privatisation also means that firms will strive to lower their costs
of production to charge lower prices than rivals.
● Deregulation: Over-regulation significantly increases COPs for firms meaning that
there are weak incentives to achieve efficiency and there may be fewer funds
available for investment. Reducing laws and government imposed standards such as
environmental laws, health and safety laws, product safety laws and laws on working
conditions reduces long run costs of production for firms. This also reduces the legal
barriers to entry into a market to increase competition incentivising firms to lower
COPs to remain competitive - improves productive efficiency so LRAS shifts
outwards.
● Improved Labour Market Flexibility: Where labour markets are flexible, the structure
of economic activity can be readily adjusted to changing patterns of global demand.
For example, if declining low-productivity sectors can give way to dynamic sectors
Supply-Side policies: measures intended to have a direct impact on long run aggregate
supply and the potential capacity output of the economy.
Market-based SSPs: policies that rely on allowing markets to work more freely and reduce
the role of the government to provide incentives for enterprise and initiative
Interventionist SSPs: policies by which the government intervenes to stimulate aggregate
supply.
Benefits of SSPs:
● Non-inflationary economic growth
● Lower unemployment
● Improved trade and balance of payments
position - firms become more competitive so they
can export more.
Market Based SSPs:
● Privatisation: this is when industries which have previously been in public ownership
(to prevent consumers from being exploited) are taken into private ownership. In
publicly owned enterprises there is generally much inefficiency as there is not
enough accountability of managers to their shareholders. When managers become
accountable to shareholders, efficiency increases as there is now the motive of it
profit maximisation. Privatisation also means that firms will strive to lower their costs
of production to charge lower prices than rivals.
● Deregulation: Over-regulation significantly increases COPs for firms meaning that
there are weak incentives to achieve efficiency and there may be fewer funds
available for investment. Reducing laws and government imposed standards such as
environmental laws, health and safety laws, product safety laws and laws on working
conditions reduces long run costs of production for firms. This also reduces the legal
barriers to entry into a market to increase competition incentivising firms to lower
COPs to remain competitive - improves productive efficiency so LRAS shifts
outwards.
● Improved Labour Market Flexibility: Where labour markets are flexible, the structure
of economic activity can be readily adjusted to changing patterns of global demand.
For example, if declining low-productivity sectors can give way to dynamic sectors
