Revision:Supply Side Policies

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Supply side policies are policies aimed at raising the level of aggregate supply, mainly to increase economic growth. It is quite difficult to increase AS. All these policies are directed at increasing productivity, one of the four determinants of AS. There are 7 supply side policies, split into 3 sections:

Labour Market

• Restricting Trade Union Power

By restricting the powers trade unions have, such as passing laws banning strike action, the government can make it easier for firms to introduce productivity-raising work policies that make their workers work harder without the fear of strikes.

• Reducing Unemployment Benefits

By reducing the Job Seeker's Allowance, the government can increase the amount of people looking for jobs, increasing the competition for jobs. Workers will adopt an "if I don't work hard enough, I'll be replaced" attitude and their productivity will increase.

• Reducing Income Tax

By reducing income tax, the government is effectively allowing workers to have a larger amount of their salaries for themselves. If taxes are low, incentives to work will be high as the worker will receive a larger portion of their wage.

• Increasing Education and Training

Education and training is one of the sub-factors of productivity, so it would make sense if it came up here. The government can either put more money into Education and training, or less. More money will improve the schemes, but less money could also have a desired effect as, by making people pay for their training and education, they are more likely to want to receive the benefits of it and pay more attention in classrooms.

• Reducing Labour Immobility

If workers can be moved to an area where there are job vacancies, then they will be adding to the employing firm's productivity. There are two types of immobility - geographical and occupational. They can both be overcome by government incentives.

Capital Market

• Increasing Investment

Policies such as the '0% corporation tax of reinvested profit' policy can increase firms' spending on capital equipment, and therefore increase productivity, since the cost of machines will effectively be reduced (as the opportunity cost is increased)

Goods Market

• Privatisation

This means selling government owned firms to private shareholders, opening up gaps for competition. This competition forces the firms to become very productively efficient, as the threat of going out of business is much higher than if the company was a public sector monopoly.

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Originally submitted by john !! on TSR Forums.