RI H1 Economics Lecture Notes 9 Supply Side Policy

2019 Y6 H1 Economics Macroeconomics 77 RAFFLES INSTITUTION YEAR 6 H1 ECONOMICS 2019 MACROECONOMICS POLICIES SUPPLY-SIDE POLICIES Outline of Content 1 Introduction 2. Definition of supply-side policies 3. Types of supply-side policies 3.1 Market-Oriented Supply-Side Policies 3.2 Interventionist Supply-Side Policies 3.2.1 Manpower Policies 3.2.2 Grants to Encourage R&D 4. Effects of supply-side policies 4.1 On Output and Price 4.2 On Employment 4.3 On Government Budget 5. Limitations of supply-side policies Appendix: Further Reading Appendix 1: CET 2020: Transforming the CET System to Build a Competitive Economy and a Career Resilient Workforce Appendix 2: Govt commits S$19b to new 5-year plan for R&D initiatives RIE2020 References: Abel, Andrew B., & Bernanke, Ben S., Macroeconomics, 4th Edition, Addison-Wesley Froyen, Richard T., Macroeconomics: Theories and Policies, 6th Edition, Prentice Hall Gordon, Robert J., Macroeconomics, 8th Edition, Addison-Wesley Lispey, Richard G, Steiner, Peter O, & Purvis, Douglas D, Economics, 9th Edition, Harper Collins Slavin, Stephen L., Macroeconomics, 8th Edition, McGraw-Hill Sloman, John, Economics, Prentice Hall Cook, Mark, & Healey, Nigel, Supply Side Policies, 4th Edition, Heinemann At the end of this lecture series, you should be able to: 1. Explain the general objectives of supply-side policy. 2. Explain the various types of supply-side policies – for example, supply-side tax cuts, , elimination of structural bottlenecks, promoting labour mobility and productivity. 3. Explain examples of supply-side policies implemented by the Singapore government. 4. Discuss how supply-side policies are used to influence output and employment, price levels. 5. Evaluate the effectiveness of supply-side policies – for example, accuracy and availability of information, time lags, uncertainty of outcomes, policy acceptability. @dream

2019 Y6 H1 Economics Macroeconomics 78 1 Introduction Prior to the Great Depression in the 1930s, public policy was shaped by the views of classical economists who advocated laissez-faire and the belief that recessions were short-run phenomena that corrected themselves through free market forces. Discretionary fiscal policy was seldom used to influence the performance of the macroeconomy explicitly. Following the onset of the Great Depression, the 1960s were the Golden Age of fiscal policy. However, during the 1970s, the problem was stagflation: the double trouble of higher inflation and higher unemployment. Demand management could not solve stagflation: an increase in AD would only worsen inflation while a decrease in AD would worsen unemployment. Thus, some economists began to focus on “supply- side policies” to ensure that material SOL is growing over time. 2 Definition of Supply – Side Policies Supply-side economic policies are mainly designed