Note 2--supply-side policy

Supply-side policy is the policy to increase the potential output of goods or services and make
the markets work more efficiently.
Apart from the other two policies,supply side policy concentrates mainly on the aggregate supply which is regarded as the
sustained
factor to produce the long-term economic growth without inflation.
When we consider the supply of the market,there are two types of market--Labour market and product market.
Product market is about the goods and services produced in an economy and the aim of the supply-side policy is to increase the productivity that it can produce more with the scarce resources. There are several supply-side policies to affect the product market:
1) Privatisation: Transferred assets from the public to the private sectors (i.e sole-trader,partnership and limited company). For example,the British airway and British gas. It is done to encourage competition of the products or goods and break down the monopolies,then to increase the supply finally.
2) Investment: Government is likely to invest more on the capital goods in order to provide more choices for consumers to meet the demand.
3) Cut tax: Cutting tax like corporation tax can encourage business or industries to invest more which may leads to economic growth.
4) Encouragement to small firms: Sometimes it is a way of protectionism and can increase the competitiveness. E.g. Loan guarantee, advice for firms.
Supply-side policy for labour market is mainly to increase the quality and quantity of the supply labour available for the economy in order to raise the supply efficiently.
1) Trade Union: Reducing the power of the trade union can prevent increasing the wages of the labour and the cost of supply.
2) Education and training: Rising government spending on education and training will produce more incentives for the people and get better skills and knowledge required by the workforce. Consequently,labour can produce the products more efficiently.
3) Income tax reform: A decline in income tax will encourage people to seek jobs and produce the supply-labour.
Supply-side policy is an useful and necessary policy to provide long-term economic growth but it's not enough without the increasing demand. Therefore,we should consider demand-side and supply-side together.

However,sometimes the supply-side policy can not work very well.
1) If there is a lack of aggregate demand, supply-side policy will lose its; functions.
2) Some policies like increasing spending on education have to take a long time see the efficiency.
3) The private sector may not be good.