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Supply-side policies and government controls
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Supply-side policies aim to increase the productive potential of the economy, so it can produce more without causing inflation.
What supply-side policy is
Supply-side policies aim to increase productivity and the economy's total output (shifting the PPC outward).
They help growth, lower unemployment and inflation, and improve competitiveness, but often take a long time to work.
They help growth, lower unemployment and inflation, and improve competitiveness, but often take a long time to work.
Examples
Privatisation: selling state firms to bring in competition and efficiency.
Deregulation: removing unnecessary rules to increase competition.
Education and training: raising human capital.
Regional policy: help for areas with high unemployment.
Infrastructure spending: better transport and communications.
Lower business taxes: to encourage investment.
Lower income tax: to encourage people to work.
Deregulation: removing unnecessary rules to increase competition.
Education and training: raising human capital.
Regional policy: help for areas with high unemployment.
Infrastructure spending: better transport and communications.
Lower business taxes: to encourage investment.
Lower income tax: to encourage people to work.
Government controls
Governments also use regulation, legislation, fines and pollution permits to control business behaviour.
Advantages: clear rules, direct effects.
Disadvantages: costly to enforce, may raise business costs, and may be avoided.
Advantages: clear rules, direct effects.
Disadvantages: costly to enforce, may raise business costs, and may be avoided.
A government spends heavily on apprenticeships. Which macroeconomic objectives could this help?
- Better skills raise productivity.
- Workers find jobs more easily.
Answer: Economic growth and lower unemployment.
Supply-side policies raise productivity and output: privatisation, deregulation, education and training, regional policy, infrastructure, lower business and income taxes. Controls (regulation, laws, fines, permits) are direct but costly to enforce.
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