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 which makes the government lose money, although the incentives to work will still be there for other people making it balance out as people will feel better about earning more money as it wont be taxed as much.
Benefits.
Benefits, which were briefly touched upon above, could by itself be used as a supply side policy. This is because if benefits were cut and harder to receive people would have more incentives to work. As before, if people have more incentives to work, the frictionally unemployed become more available as well as increasing the number of people willing to work. These increase of numbers would result in more job vacancies being filled causing an increase in aggregate supply. A drawback of this is that people could easily slip below the poverty line making the UK seem like a worse place to be living, which would deter people from coming here. That being said, it will be the persons choice and because of the incentives to get into work not many people would choose to fall below the poverty line.
The product market.
With all products being within a market, if the government allows more competitors, this means that the companies producing the products have to become more efficient. This would be a supply side policy as higher efficiency would mean that aggregate supply would increase. A drawback of this policy is that it may be hard for other companies to become competitors in the market either because of the market it is in or because the company has the monopoly over it.
Privatisation.
When the government transfers their assets into the private sector it removes the safety net that being a government asset provides. This would mean that the company would have to increase efficiency to remain in the market, which would have a knock on effect on the aggregate supply by increasing it. A drawback of this policy is that the government having the company as an asset previously means that the company would be a monopoly in the market, meaning it has very little, if any, competition, which could increase the aggregate supply further.
Overall comments about these supply side policies are that each of them have their own merits and drawbacks. I personally feel that the worst policy to use is the reduction of benefits, because it brings down the view of the UK to the rest of the world which could have an impact on the demand for products from the UK. The best policies are decreasing taxation on incomes because it provides large incentives to earn more money or any money at all for the unemployed, and training the unemployed as it is a long term investment which provides income for the government in the long run in the form of taxation and because it is just using resources that are otherwise wasted.
Although the other policies, the product market and privatisation were very good for increasing aggregate supply, I feel that they would be less successful as the taxation and training as they would make short and long term gains whereas the product market and privatising a business would take time and just be a long term gain.
All of the previously mentioned policies would have the impact of pushing the production possibility frontier outwards making more products available for increased demand caused by the increase of available income people have to spend which is shown in the PPF diagram.
as well increasing the PPF it would also increase aggregate supply which leads to the decrease in price level and increase in real GDP produced which is shown in the aggregate demand and supply diagram.