Unit 2: Suppy Side Policies - Revision Notes

Here is a streamed presentation of a revision talk on the economics of supply-side policies. The Unit 2 macro syllabus places a heavy emphasis on the supply-side as a driver of economic growth, improved trade balances as a better trade-off between unemployment and inflation. Make sure that you are secure on the main supply-side policy approaches and also the impact of such policies on LRAS. You ought to be aware too of some of the limitations of supply-side policies - and the importance of having a sufficiently high level of aggregate demand. I have linked below to some revision blogs on supply-side topics.


Revision presentation on supply-side policies

Supply-side policies are mainly micro-economic policies designed to make markets and industries operate more efficiently and thereby contribute to a faster rate of growth of real national output.

Policies include:

• Competition policy including privatisation/nationalisation. Deregulation and regulation.

• Policies aimed at stimulating entrepreneurship and the expansion of smaller businesses

• Labour market reforms including tax and benefit changes, migration policy

• Trade policies including membership of the EU single market and WTO commitments

• Policies designed to increase spending on investment and research

Supply-side objectives

The key supply-side concepts to focus on are incentives, enterprise, technology, mobility, flexibility and efficiency.

1. Improve incentives for people to find work

2. Increase labour and capital productivity

3. Increase the occupational and geographical mobility of labour to reduce unemployment

4. Increase capital investment and research and development spending by firms

5. Promoting more competition and stimulate a faster pace of invention and innovation

6. Provide a platform for sustained non-inflationary growth of an economy

If supply-side policies are effective then the British economy can

• Achieve a sustained improvement in the trade-off between inflation and unemployment

• Be more flexible in response to external demand and supply-side shocks

• Raise living standards through stronger long term economic growth

• Reduce unemployment by lowering the natural rate of unemployment and the NAIRU

• Improve competitiveness in global markets and achieve a stronger performance in international trade in goods and services