3.2.3
Note

Supply-Side Policies

3.2.3 Macro policies

Statement

Supply-side policies are policies designed to influence the production costs, productive capacity, factor mobility and efficiency of an economy.

  • Market-oriented supply-side policies are policies aimed at allowing the free market to work more efficiently (e.g. privatisation, deregulation, liberalisation).
  • Interventionist supply-side policies are policies aimed at actively altering free-market outcomes where the market fails to reach efficient ones (e.g. subsidies, direct provision, regulation).
  • Short-run supply-side policies influence short-run aggregate supply by reducing the cost of production.
  • Long-run supply-side policies influence long-run aggregate supply by raising the productive capacity of the economy.

Notes

This is one co-examined set, organised along two axes: means (market-oriented vs interventionist) and time horizon (short-run, shifting short-run aggregate supply; long-run, shifting long-run aggregate supply). A single instrument can occupy more than one cell — a subsidy is interventionist and can act in either horizon. How each shifts the aggregate-supply curve, with worked examples and limitations, is set out in the supply-side policy concept. A policy whose primary aim is to move aggregate demand (fiscal or monetary) but which also shifts aggregate supply as a secondary effect is termed a demand management policy, not a supply-side policy.