Supply-Side Policies chapter 35

• Labour.
• Physical capital or human capital.
• The availability of natural resources.
• Technology.
• Expectations of   the price level.

• almost horizontal at low levels of national income
• gradually steepens as bottlenecks or shortages occur.
• vertical as it approaches full employment. 

 trade off between  increase in national income / price rises depends on how large the output gap is. If AD continues to shift to the right = means that national income  only rise by  small amounts but the pressure on resources will cause the price level to rise more quickly.

output gap wrong=to unanticipated consequences.

• Rising prices little growth
• Large fall in national income little impact inflation levels 

Shifting the aggregate supply to the right can = sustained growth. 

•    Increases living standards
•   Reduces unemployment
•    Keeps prices stable

Market-orientated supply-side policies

Interventionist supply-side policies 

There are four elements 

A.Reform tax and welfare policy.

B.Flexible labour markets.

C.Reducing government spending.

D. Privatization and deregulation

The Laffer curve looks at the relationship between tax rates and tax revenue.

Three aspects to getting more flexible labour markets

• Reduce trade union power and encourage local level wage agreements.
• Reduce rigidities in the labour  market
• Improving market information for employers, workers and the unemployed.  

Four key aspects to interventionist supply-Side policies.

•     Infrastructure Investment.
•     Investment in Education and Training
•      Research and Development 
•     Regional or Industrial Policies