Supply side policies are those policies aimed at increasing the productive potential of an economy thereby causing an outward shift in the production possibility curve. In other words, they are government policies that increase the amount of ‘supply’ that is capable of being produced over the long term.

The supply side policies measure enacted by various government are:

Education and Training: With an improved education and training in an economy, it leads to workforce with skills, productivity, flexibility and mobility. The government spending on education and training will boost the productivity capacity of the workforce in an economy. An increased spending on education will ensure that graduates have the necessary skills needed in the world of work.

Privatisation: This is a process where state owned assets are sold off to the private sector so that they can be more effective and productive. Since private firms are motivated by profit they can develop better products and services to boost productive potential of the economy.

Deregulation: This refers to the process of removing or reducing barriers to entry in order to make markets more competitive. Increased competition tends to leads to lower prices and better quality of goods and services.

Tax Incentives: tax incentives can also stimulate firms to invest in an economy in order to maximise profit. Tax incentives could also be in the form of direct tax cut encouraging people to find work and become more productive. Lowering indirect tax could raise aggregate demand in an economy there by boosting supply of goods and services.

Labour market reforms: labour market reforms helps to promote greater competition through the removal of rigidities in law. it can reduce or remove the power of trade unions, increase minimum wage to ensure increased productivity and efficiency.

Impacts of Supply side policies on macroeconomic aims

  1. Economic Growth: Supply side policies can guarantee increased productive capacity in the economy. An increase in education and training can help bolster aggregate supply which can lead to economic growth.
  2. Low Unemployment: An increase in training can help reduce frictional and structural unemployment thereby making workers more efficient and increasing national output.
  3. Low inflation: An increase in the production of goods helps protect the general price level from rising as there would more goods competing for the attention of the consumer.
  4. Balance on International Payment: An increase in national output and productivity without inflation will ensure that international competitiveness of the country improves. This will boost the export earnings of the economy.