Study Notes
Supply-side policies aim to increase the economy's productive capacity and efficiency, leading to a rightward shift in the long-run aggregate supply (LRAS) curve. These policies focus on improving productivity and the efficiency of production processes.
- Supply-side policy — government actions to enhance the efficiency of product and factor markets. Example: Reducing regulations to increase market efficiency.
- Long-run aggregate supply (LRAS) — the total output an economy can produce when using all resources efficiently. Example: A rightward shift in the LRAS curve indicates increased productive capacity.
- Productivity — the efficiency with which goods and services are produced. Example: Training programs that improve worker skills and output.
- Infrastructure development — investment in essential services like transport and energy to support economic activity. Example: Building new highways to reduce transportation costs.
- Technological improvement — advancements that allow more output at lower costs. Example: Introducing robotics in manufacturing to enhance production efficiency.
Exam Tips
Key Definitions to Remember
- Supply-side policy
- Long-run aggregate supply (LRAS)
- Productivity
- Infrastructure development
- Technological improvement
Common Confusions
- Confusing supply-side policies with demand-side policies
- Misunderstanding the impact of supply-side policies on inflation
Typical Exam Questions
- How do supply-side policies affect the LRAS curve? They cause a rightward shift, indicating increased productive capacity.
- What are the main tools of supply-side policy? Education and training, infrastructure development, and technological support.
- How can supply-side policies impact employment? By increasing skills and reducing unemployment through training and infrastructure improvements.
What Examiners Usually Test
- Understanding of how supply-side policies increase productivity
- Ability to analyze the impact of supply-side policies on national income and output
- Knowledge of the tools used in supply-side policies and their effectiveness