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Supply-side Policies


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Supply-side policy
A government policy aimed at shifting AS to the right thus increasing real GDP and lowering the price level.
Privatisation
The sale of public assets into the private sector, normally by 'flotation'. The aim is to increase efficiency and improve productivity through market incentives.
Deregulation
The opening up or markets to competition in order to thereby increase efficiency and improve productivity through market incentives.
Flexible labour markets
The desired aim of policies such as reducing trade union power. It means that firms can hire and fire workers more easily and wage rates will rise and fall with demand and supply for workers.
Education spending
Aimed at increasing innovation and productivity through a better-trainined workforce. Some policies of this kind operate with significant time lags.
Contracting out
Ensuring that support services e.g. cleaning etc. are undertaken by non-public sector employees i.e. 'sold to the lowest bidder' in a bid to reduce public sector costs and increase productivity.
Benefit cuts
Aimed at increasing incentives to work through reducing the welfare 'safety net'.
Human capital
A term to express the productive power of workers that can be enhanced through education and training.
Reduction of income tax
Aimed at incentivising work and productivity as workers will keep more of the income earned from increased productivity or hours worked.
Tax breaks
Incentives e.g. to new firms to keep more of their tax if they invest
Trade liberalisation
The removal of barriers to trade to attract foreign direct investment
Reduction in corporation tax
An obvious method of incentivising firms to allow them to keep more of their profits.
Time lags
The delays that mean that some supply-side policies take many years to impact on the economy (e.g. changes to education).
Increased inequality
The broadening income gap that can result form some supply-side policies e.g. tax cuts for the rich coupled with benefit reductions.