Supply Side Policies

By Tejasvi Purohit
X-IG
• These are policies used to increase Aggregate Supply – Quality and
Quantity of Goods & Services produced by an economy (in the long
run).
• They aim to meet the government's macroeconomic aims when
paired with AD policies.
 The Policies
• Improving education and vocational training: the government can invest in
education and skills training to improve the quality and quantity of labour to
increase productivity.
• Income tax cuts: reducing income tax will increase people’s willingness to
work more and earn more, helping increase the supply in the economy.
• Subsidies are financial grants made to industries that need it. More
subsidies mean more money for producers to produce more, thereby
increasing supply
• Deregulation: removing or easing the laws and regulations required to start and
run businesses so they can operate and produce more output with reduced costs
and hassle, encouraging investments.
• Labour market reforms: making laws that would reduce trade union
powers would reduce business costs and increase output. Minimum wages
could be reduced or done away with to allow more jobs to be created.
Welfare payments like unemployment benefits could be reduced so that
more people would be motivated to look for jobs rather than rely on the
benefits alone to live. These will not only increase the incentive to work
but also increase the incentive to invest.
• Privatization: transferring some public corporations to private ownership
will increase efficiency and increase output, as the private sector has a
profit-motive which is absent in public sector.
Effect of supply-side policies.