Supply side economics came to the forefront in the early 1980’s, championed by the governments of Ronald Reagan in the United States and Margaret Thatcher in the United Kingdom.
However, the term supply-side was first coined in 1976 to describe economic policies designed to influence output and employment through their impact on the supply-side as opposed to the demand-side of the economy.
Supply-side policies cause a shift to the right of the aggregate supply curve, leading to greater output at lower prices, as long as the economy is below the full employment level.
This project examines the development of supply-side economics, assesses the performance of recent supply-side policies and considers the future of supply-side policies.
UNDERSTANDING SUPPLY-SIDE POLICIES
Supply-side policies are made of several important points to regulate the economy.
These policies consist of stimulating the economy by production, cutting taxes, and limiting government regulations to increase incentives for businesses and individuals.
This would lead businesses to invest more and expand to create jobs for people who would save and spend more money.
Thus, increased investment and productivity would lead to increased output in the economy. With this increased output the economy grows and unemployment goes down.
This will cause the shifting of long run aggregate supply (LRAS) to the right and a pushing out of the Production Possibility Frontier Curve (PPF) as demonstrated below.
Agg P level AS1 AS2 Consumer goods
Y1 Y2 Real GDP (Y) Capital goods
Broadly these policies aim to increase:
• The quantity
• The quality
• The efficiency of use
of the four key factors of production (land, labour, capital and entrepreneurial ability) and thereby foster economic growth.
These policies can be split into three main categories:
1) Fiscal supply side policies
2) Labour market reforms
3) Product market...