The Impact of Supply-Side Policy on Macroeconomic Objectives (Edexcel IGCSE Economics)

Economic growth

• Supply side policies increase the rate of growth of an economy

• Deregulation or privatisation. encourages new firms to enter the market, which stimulates economic growth

• Spending on infrastructure projects or education and training increases potential national output, leading to higher real gross domestic product (rGDP)

Low and stable inflation

• Supply side policies reduce inflation as lower taxes, privatisation or deregulation can reduce the cost of production

• There is also a greater supply in the economy, which results in reductions in the prices of goods and services, leading to disinflation and making the exports of the nation more competitive

Low unemployment

• Improving the quality of the workforce through better education and training can reduce unemployment levels

• Greater productivity will lead to higher demand for labour

Stable current account on balance of payments

• Supply side policies often increase the value of net exports

• Due to the increased supply, the prices of goods and services often decrease, which makes them relatively more attractive to foreigners, so exports increase

Environmental protection

• Large infrastructure projects and transport projects almost always have some negative externalities associated with their creation

• E.g. Building a dam in a gorge to create a hydro electric station damages the natural environment and ecosystem

The redistribution of income

• The distribution of income may worsen as deregulation offers less protection against low wage employment

• Reducing taxes results in less government tax revenue and unemployment benefits, leading to a decrease in income redistribution