Discuss whether or not supply-side polices are the best for achieving economic growth.

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Nicole Tsui

Economics Essay

Discuss whether or not supply-side polices are the best for achieving economic growth.

  Economic growth is one of the main indicators of a country’s economic performance. The rate of economic growth measures the annual % increase in Real GDP. Boosting economic growth has been one of the aims of the government in order to promote a better society. It can be done by increasing aggregate demand (AD) or aggregate supply (AS) of an economy.

  To clarify my stance, I disagree supply-side policies are the best for achieving economic growth to a large extent. Although supply-side policies can help to increase labour force as well as economic growth in long run (shifting LRAS rightwards) through education and training, there is time lag in carrying out these policies. Also, imperfect information may mislead the government to carry out effective policies i.e. cutting taxes and reducing benefits. This may lead to greater budget deficit. Due to the uncertainties and risks when carrying out supply-side policies, it’s better for the government to increase AD.

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  AD can be increased if the economy is below full employment level and there is spare capacity within the economy. In order to increase AD, the government can increase consumption expenditure (C), investment (I), government expenditure (G) and exports (X).

  One of the ways is to cut the tax and increase the level of government spending (G). Cutting taxes can raise consumers’ disposable income, so as their purchasing power. And consumer confidence increases as they are optimistic towards the market. This increases the AD. As AD rises, both price level and real GDP of an economy ...

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