3.7.1—Goals of supply-side policies

Supply-side policies aim to raise productive capacity, productivity, employment, competition or flexibility, shifting LRAS or improving efficiency.

They can support growth and lower inflation but may take time and affect distribution.

State the structural problem and the capacity channel.

Training raises worker productivity, while competition reform may lower costs and increase innovation.

A policy called supply-side is not automatically effective or equitable.

Supply-side goals connect through capacity and costs: greater factor quantity or quality raises long-run productive capacity and growth; competition and efficiency improve resource allocation; labour-market flexibility may lower labour costs and unemployment; lower unit costs reduce inflationary pressure and improve international competitiveness; and lower costs or stronger incentives can encourage firms to invest and innovate. These are intended mechanisms, so distinguish a rightward LRAS shift from a temporary rightward SRAS shift and evaluate distributional effects.