5.4.4—Supply-side policy in AD/AS

A successful supply-side policy can shift long-run aggregate supply by increasing sustainable capacity. Some measures also lower firms’ current costs and shift short-run aggregate supply.

The same intervention may have a short-run fiscal or demand effect before its supply effect appears. Draw only the curve justified by the mechanism and time horizon.

A payroll-tax reduction may lower current unit costs and shift SRAS right; a long training programme may initially use public resources and shift LRAS right only after workers gain skills.

Do not draw an immediate LRAS shift for every policy announcement, and do not assume an SRAS improvement automatically raises long-run productivity.