Supply-side policies
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Policies that aimed at shifting the LRAS or Keynesian AS curves to the right, to increase potential output and achieve long-term economic growth
2 major kinds of supply-side policies
*Two of them are completely opposite
Interventionist supply-side policy
Market-based supply-side policy
3 types of market-based supply side policy
Encouraging competition
Labour market reforms
Incentive-related policy
Evaluating supply-side policy
Time lags
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Both interventionist and market-based have significant time lags since (increase in competition, labour market reform, changing incentives... etc) need time to process and actually make an effect on potential output
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Supply-side policy could also help closing the recessionary gap
Impact on economic growth
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Supply-side policies play a very important role in increasing potential output
Arguments favouring different supply-side policies
Ability to create employment
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Supply side policies can create employment in different extent
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Refers to the reduction to natural rate of employment
Ability to reduce inflationary pressure
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Both interventionists and market-based are likely to reduce inflationary pressures over the long term (Since shift in potential output has no influence on price level)
Impact on Government budget
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Negative consequence on government budget
Effects on equity
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Mixed effects on equity
Effects on the environment
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Market-based policy to increase competition may cause damage to environment and externalities since firms would like to lower down their cost and increase their efficiency as much as possible due to the pressure of competition
*It is more likely to combine different policy in order to achieve macroeconomic objective with the lowest negative consequence and trade offs