What are the main objectives of supply-side policies?

The main objectives of supply-side policies are to increase productivity, stimulate economic growth, and reduce inflation.

Supply-side policies are government measures aimed at improving the productive potential of an economy and shifting the long-run aggregate supply (LRAS) curve to the right. They are designed to enhance the ability of the economy to produce more goods and services, thereby increasing the potential output of the economy.

One of the primary objectives of supply-side policies is to increase productivity. This can be achieved through various means such as improving education and training to enhance the skills of the workforce, investing in research and development to foster innovation, and promoting competition to encourage efficiency. By increasing productivity, these policies can help to raise the standard of living in the economy as more goods and services can be produced with the same amount of resources.

Another key objective of supply-side policies is to stimulate economic growth. By increasing the productive capacity of the economy, these policies can help to achieve sustained growth in real GDP. This is particularly important in the long run as it can lead to higher incomes and improved living standards. Moreover, by expanding the economy's capacity to produce, supply-side policies can also help to prevent demand-pull inflation which occurs when demand exceeds supply.

Reducing inflation is also a major goal of supply-side policies. By increasing the supply of goods and services, these policies can help to alleviate upward pressure on prices. For instance, deregulation and privatisation can increase competition and efficiency, leading to lower costs and prices. Similarly, policies aimed at reducing the power of trade unions can help to moderate wage demands, thereby helping to control cost-push inflation.

In addition, supply-side policies can also aim to improve the flexibility of the labour market and reduce structural unemployment. This can be achieved through measures such as labour market reforms to make it easier for firms to hire and fire workers, and policies to reduce the disincentives to work such as high marginal tax rates and generous unemployment benefits.

In summary, the main objectives of supply-side policies are to increase productivity, stimulate economic growth, and reduce inflation. These policies can play a crucial role in enhancing the long-term performance of the economy.