Supply-side policy
Supply-side policy
- Supply-side policy raises the amount the economy can produce — improving the quantity/quality of the factors of production.
- Methods:
- education and training (better skills → higher productivity),
- privatisation (sell state firms to private owners),
- deregulation (remove rules holding firms back),
- incentives (lower income/profit taxes so people work and invest more).
Practice
Supply-side policy aims to:
Supply-side policy improves the quantity and quality of factors, raising capacity.
Practice
Which is a supply-side policy?
Education/training, privatisation, deregulation and incentives raise productivity and capacity.
Strength and weakness
- + can raise growth and jobs and lower inflation at the same time.
- − it works slowly.
Practice
A weakness of supply-side policy is that it works slowly.
It can raise growth and lower inflation together, but education and reform take years to pay off.
You've got it
Key idea
- supply-side policy raises the economy's capacity (better factors)
- methods: education/training, privatisation, deregulation, incentives
- + growth + lower inflation together; − slow to work