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Economics Supply and Demand

In: Business and Management

Submitted By Deyyan1997
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Key Assignment (2) – Economic Growth and Supply Side Policy 1. Evaluate the use of supply side policies to achieve economic growth

Supply side policies are polices designed to improves an economy’s productive potential and its ability to produce, which contributes to a faster rate of growth of real national output. Governments believe achieving sustained growth without causing a rise in inflation is dependant on improving supply-side performances. The perks of supply side policies are that it helps economies to develop labour productivity, reduce unemployment, and improve trading to help achieve economic growth.

A key aim for supply-side policies is to decrease the level of unemployment in an economy. The policy is designed to improve the quality and quantity of the supply of labour available to the economy. A growth in labour supply increases the productive potential of an economy. Increased quality will improve the productivity of labour. A reduction in unemployment can be achieved through cuts in Income tax, providing an incentive to work. As income tax is paid directly from an individuals earned income, a lower income tax will act as an incentive for unemployed workers to join the labour market, or for existing workers to work harder. This is as result of them being able to keep a high proportion of the money they earn. An increase in national output can be accomplished as lower corporation tax provides an incentive for entrepreneurs to start a business or organization.
With people working for longer, the productivity and aggregate supply of an economy increases the productive capability of an economy, whilst putting unemployed workers to good effect. Furthermore reducing tax rates for lower paid workers may help to diminish the extent of the unemployment trap - where individuals realize that they may be no better off from working than if they stayed

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