Assess whether supply-side policy is the most
effective way to achieve long-run economic
growth.
Outline
AO1+AO2
Supply side policy- expenditure on education & training;
innovation and infrastructure
Long run economic growth = increase both AD and AS
Adv:
- Increase productivity => increase potential economic growth
=> increase the LRAS curve = allow the economy to produce
more
Disadvantages
- Not affect AD
- Not seeing the changes immediately; Supply side policy
NEEDS time btw
- Spend much more on capital goods than consumer goods
=> lowering living standards in SR
Another policy to consider? Expansionary demand-side policy
(fiscal/ monetary) to increase demand
Possible strengths: increase AD => increase in Output
IMMEDIATELY=> actual economic growth
Possible weaknesses: not increasing productive capacity => not
increase the potential => in LR may be out of resources => not
sustainable
AO3 Evaluation
Not the most effective way
Still effective in some extent- increase but mainly in AS
How to achieve long run economics growth?: the government- use
both policies or both of them depending on the real scenarios of
the economy
Therefore, need to raise considerations about inequality;
environmental issues; and so on
Graph may be applied:
Increase in LRAS
PPC showing actual and potential economic growth?
Example may be applied:
Vietnamese government spend money on building infrastructure
such as Metro project. This is to increase the productive capacity
by decreasing geographical immobility. However, it affects
citizens in that area bc of lock down command forcing them to
reallocate their home and pollution This should decrease the
living standards.
Essay:
Supply side policy is the type of policy concentrated on the
Aggreagate supply; aiming to increase the productive potential
through education, improved infrastructure and so on. In order to
achieve Long- run economic growth; the government must aim to
increase both AD and AS in the long run
Supply side policy is effective because it aid to increase
productivity; which is meant by an increase in the potential
economic growth. This should lead to an increase in LRAS; shifting
the curve to the right. This means that the economy are able to
produce more in the long run. However; it cannot affect the
output immediately since it takes time to response to the change.
For example; workers need time for training before being more
productive. Also, when imposing supply side policy; it means that
the economy prioritize producing capital goods rather than
consumer goods. This may lead to a shortage of consumer goods;
lowering the living standards because of want unsatisfaction.
Environmetal issues is also considerable. For instant, Vietnamese
government spend money on building infrastructure such as
Metro project. This is to increase the productive capacity by
decreasing geographical immobility. However, it affects citizens in
that area bc of lock down command forcing them to reallocate
their home and pollution This should decrease the living
standards.
Another policy can be considered in this case is expansionary
demand side policy (fiscal / monetary), aiming to increase AD in
the economy. (increase AD => increase in Output
IMMEDIATELY=> actual economic growth). Nevertheless, (not
increasing productive capacity => not increase the potential =>
in LR may be out of resources => not sustainable)
In evaluation and conclusion, (Not the most effective way
Still effective in some extent- increase but mainly in AS
How to achieve long run economics growth?: the government- use
both policies or both of them depending on the real scenarios of
the economy
Therefore, need to raise considerations about inequality;
environmental issues; and so on)
Also; this policy is supply-side concentrated; which does not affect
the AD sides of the economy.
