Supply-Side Policies

Where demand-side policies shift AD, supply-side policies aim to increase the productive capacity of the economy by shifting the LRAS curve (or the PPF) to the right. They target the quantity and quality of the factors of production and are the key to long-run, non-inflationary growth.

Two broad approaches

Supply-side policies fall into two families. Market-based policies try to increase competition and improve the incentives and flexibility of markets, reflecting a belief that free markets allocate resources efficiently. Interventionist policies rely on the government to invest directly where markets under-provide, especially in human capital, infrastructure, and research.

Market-based policies

These include labor market reforms such as reducing the power of trade unions, cutting unemploy