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Introduction

Explain how supply side measures can be used to promote economic growth (15) Supply side policies are government policies designed to increase the productive potential of the economy and push the LRAS curve to the right. They can affect the economy in a number of ways: increasing the supply of the quantity and quality of labour, raise the amount of capital employed, further the exploitation of natural resources and increase efficiency of the factors of production. 'Fixing infrastructure' was one of the factors David Cameron has mentioned that would provide immediate economic boosts and help with growth in the long term as well. To promote economic growth, supply side policies focus on shifting the LRAS curve to the right. Supply side policies are an economic theory that states that a reduction in taxes will stimulate the economy through increased consumer spending. Over time, the increased economic growth will generate a larger tax base, which will recoup the revenue lost from the tax cut. ...read more.

Middle

UK, business tax levels are only a small factor in business investment decision making and therefore the levels of business tax may seem relatively unimportant in the supply side policy mix. Supply side policies may also affect labour productivity and unit labour costs. Labour productivity is defined as output per worker. Increasing labour productivity will reduce unit costs, i.e. the cost of labour per unit of production. The firm will therefore be more competitive than before. However, if all firms in the industry also introduce the same methods, relative competitiveness will remain the same. As the economy in question grows, labour productivity will rise. More capital will be used by labour to produce goods and services. Workers will also become better trained and more highly skilled. Unit labour costs, however, will remain the same. This is because increases in productivity will be matched by increases in wages. ...read more.

Conclusion

Therefore the natural rate of unemployment will be low. On the whole, supply side factors help us to explain why some countries grow faster than others. It is becoming increasingly clear that maintaining and improving competitiveness is vital in achieving success in international markets. A rising share of GDP in most countries is down to international trade. There is a general view that the supply-side of the UK economy has improved over the last twenty years even though there are still weaknesses in several sectors and the UK must face up to increasingly fierce competition from other countries as the effects of globalisation take hold. Our product and labour markets are more flexible than they were a decade ago but many businesses find that government intervention places too heavy a cost of administration and other forms of regulation and that this acts as a barrier to future investment and growth. Increasing amounts of regulation both from the UK and the European Union can add to business costs and reduce competitiveness overall. ?? ?? ?? ?? Katie Bhagaloo Economics Unit 4 Mrs Harker ...read more.

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