ACJC Macro Policies (2) - Supply Side Policies and Conflicts

©ACJC Econs Dept/2024/H1H2 Macroeconomic Policies Part 2: Supply Side Policies 1 ANGLO-CHINESE JUNIOR COLLEGE JC2 Economics 2024 H1 H2 MACROECONOMIC POLICIES (2) Supply-Side Policies and Conflicts in Macro Objectives Section Contents Page 1 Overview 2 2 Supply Side Policies 3 2.1 Long Run Supply Side Policies 3 2.2 Short Run Supply Side Policies 8 3 Conflicting Macroeconomic Objectives 10 4 Annex 14 Texts for References: 1. Principles of Economics: Case, Fair & Oster, 10th edition, pages 638-644, 662-663 2. Principles of Economics, Asian Edition: Mankiw, Quah & Wilson, chapter 25 3. Economics: John Sloman & Alison Wilde, 7th edition, chapters 14.4, 14.5, 22 & 23 4. Economics Today: • Volume 21 Issue 1, Pages 10-15 • Volume 24 Number 2, Pages 22-28

©ACJC Econs Dept/2024/H1H2 Macroeconomic Policies Part 2: Supply Side Policies 2 1. OVERVIEW: In part 1 of Macroeconomic Policies, we learnt that governments could adopt the following policies to address macroeconomic problems and achieve their macroeconomic goals. Governments’ macroeconomic intervention for dealing with macroeconomic problems involves the use of a set of policy instruments. These policy instruments can be classified as follows: **H2 only *H2 only

©ACJC Econs Dept/2024/H1H2 Macroeconomic Policies Part 2: Supply Side Policies 3 2. SUPPLY SIDE POLICIES: Unlike demand-side policies, many policies can be classified as supple side policies. Generally, however, supply -side policies tend to be focused on increasing the productive capacity and lowering the unit cost of production in the economy. Supply-side policies aim to promote long run growth, reduce macroeconomic instability, and improve factor mobility. • Long term growth can be promoted through policies which aim to raise the quantity and quality of resources (e.g., investments in education, capital, and technology etc). • Macroeconomic instability can be reduced through policies which aim to quickly lower economy -wide production costs (e.g., wage subsidies, cuts in employers’ social security contributions, price controls on wages or rentals) or to directly manage prices of necessities (e.g., subsidies or price controls on food and fuel) • Factor mobility can be enhanced by promoting retraining, job matching and various forms of deregulation to enable both factor and product markets to operate more efficiently. Supply-side policies can be categorised into policies targeting the LRAS and/or SRAS. 2.1 Policies that affect LRAS Long-run supply -side policies are mainly implemented to increase the productive capacity of an economy. Supply-side policies that seek to increase LRAS can be broadly categorized into 4 categories: a. Policies to improve the quality and quantity of the labour force. b. Policies to improve infrastructure developments. c. Policies to improve the level of technology.