Supply-Side Policy

• Supply-side policy measures are designed to increase aggregate supply and hence increase productive potential. 
• They seek to increase the quantity and quality of resources and raise the efficiency of product and factor markets. 
• Including improving education and training, cutting direct taxes and benefits, reforming trade unions, and privatization.

Improving education and training

• Designed to increase the skills of workers 
• Makes workers more productive
• Increases supply

However, if the training isn’t in the right fields (SUCH AS GARDENING OVER MATHS) and if taught to workers who can make use of those skills, it is INEFFECTIVE. 

Selective tax incentives

Reduction in taxes is a great incentive for increase productivity, for example:

1. Reduction in income taxes acts as an incentive for workers to work harder
2. Reducing taxes on profits will encourage more people to start their businesses. 
3. Reducing taxes on the profits of businesses will increase the amount of money invested in new, advanced, and more efficient methods of production. 

Selective subsidies

A subsidy is a non-repayable sum of money or ‘grant’ given to an organization by the government to help it meet costs and increase its profits. 

Introducing subsidies will:

• Encourage new start-ups
• Increase investment in R&D
• Increase investment in training
• Increased capital  investment 

Labour Market reforms 

• Powerful trade unions may restrict the supply of labor, this will increase wage rates and make production more costly. THE GOVERNMENT CAN INTRODUCE LAWS THAT RESTRICT THE POWER OF TRADE UNIONS
• If welfare payments to the unemployed are too generous, this may be a disincentive to seeking employment. THE GOVERNMENT CAN REDUCE THE BENEFITS AND BE LINKED THE INDIVIDUAL ACTIVELY SEEKING WORK.
• When firms offer low wages to less or unskilled workers, the government can set minimum wages to decrease the number of people who rely on the government for unemployment benefits. 

Competition Policy

High competition encourages firms to keep costs low and improve their products. The government aims to avoid monopolies to ensure that a firm does not take advantage of a lack of competition. 

Privatization

Privatization involves the transfer of a state-owned enterprise to the private sector. PRIVATE FIRMS FUNCTION MORE EFFICIENTLY COMPARED TO STATE-OWNED ENTERPRISES WHICH INCREASES THE ECONOMY’S PRODUCTIVE POTENTIAL. 

Deregulation 

Deregulation is the reduction, or elimination, of rules and regulations that have been enforced by laws. 

This aims to remove barriers to entry to markets and to reduce the costs of complying with the rules and regulations. ALSO, A REDUCES COST OF REGULATING THE INDUSTRIES AND OCCUPATIONS AFFECTED. 

Effect of supply-side policy on the macroeconomic aims:

In the long run, all the government’s macroeconomic aims have the potential to benefit from supply-side policy. Increasing aggregate supply enables an economy to continue to grow in a non-inflationary way. The figure below shows aggregate supply rising in line with aggregate demand. Such a combination enables output and employment to increase without inflation.