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26 views2 pages

supply side

Uploaded by

Mayurika spam acc
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Supply side policies are microeconomic policies aimed at increasing

supply and productivity in the economy, to enable long-term economic


growth. Some of these policies include:

● Public sector investments: investments in infrastructure such as


transport and communication can greatly help the economy by
making the flow of resources quick and easy, and facilitate faster
growth.
● 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.
● Spending on health: accessible, affordable and good quality health
services will improve the health of the population, helping reduce
the hours lost to illnesses and increasing productivity.
● Investment on housing: as more housing spaces are built, the
geographical mobility of the population will increase, helping
increase output.
● Privatization: transferring some public corporations to private
ownership will increase efficiency and increase output, as the private
sector has a profit-motive absent in public sector.
● 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.
● Removing trade barriers: the govt. can reduce or withdraw import
duties, quotas etc. on imports so that more resources, goods and
services may be imported to increase productivity and efficiency in
the domestic economy. It can also reduce export duties to increase
export of resources, goods and services to other nations, thereby
encouraging domestic firms to increase production.
● 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.

For example, India, in the early 1990’s undertook massive privatisation,


liberalisation and deregulation measures; abolishing its heavy licensing
and red tape policies, allowing private firms to easily enter the market and
operate, and opening up its economy to foreign trade by reducing the
excessive trade tariffs and regulations. This led to a period of high
economic growth and helped India become the emerging economy it is
today.

Supply-side policies have the direct effect of increasing economic growth


as the productive capacity of the economy is realised. In doing so, it can
also create more job opportunities and help reduce unemployment. Trade
reforms will also enable to it to improve its balance of payments.

However, the reliance on public expenditure and tax cuts mean that the
government may run large budget deficits. Deregulation and privatisation
will also reduce government intervention in the economy, which may
prompt market failure.

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