A report into supply side policies in the UK.

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Jasmine Peek         Economics        Mr Brown

A report into supply side policies in the UK.

There are many policies which effect the real GDP level of the UK. These are controlled by the government generally and there are 3 different types; Fiscal policies, Monetary Policies, and Supply side policies. Supply side policies are a range of measures designed to increase aggregate supple and hence the potential output of the economy, though many improvements may come from the private sector.

The product possibility frontier (PPF) graph to the left is showing what normal supply can be produced by the inside blue line, while the outside blue line shows what can happen when aggregate supply is changed, which can be caused by supply side policies.

Changes in aggregate supply can also be shown on aggregate demand and supply graphs which is shown now to your right. This graph shows that although the demand line remains the same the supply curve changing causes an increase in real GDP produced shown from the increase from Y1 to Y2 and a decrease in price level as shown by the drop from P1 to P2.

Supply side policies.

Education and Training.

This can be used as a supply side policy. This is because if the unemployed and untrained workers are trained up under the policy it would mean the structurally unemployed would become trained in another sector that has demand for them, making them employable again. This therefore increases the labour available making it possible to increase aggregate supply. The potential drawbacks of this kind of policy is that in short run it would be very expensive for the government to provide the training of the unemployed, but this could be seen as a long term investment as they would receive taxation from them when they become employed.

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Taxation.

Another policy that can be used is that of increasing the amount of money earned before taxes and making the taxation on the rest lower. This would increase supply as people would see it as an incentive to work as they would be better off with it, than for example living off of benefits. The increase of incentives would make people go and find jobs, which therefore adds more of the frictionally or structurally unemployed to the available labour making the aggregate supply increase. A drawback of this may be that people don’t earn enough money to be taxed ...

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