AD AS Aggregate Supply (AS) AGGREGAATE SUPPLY & SUPPLY SIDE POLICIES GPL (Y) Aggregate supply is the total supply of goods and services that firms in a national economy plan on selling during a specific time period. It is the total amount of goods and services that firms are willing to sell at a given general price level in an economy.

AGGREGAATE SUPPLY & SUPPLY SIDE POLICIES Aggregate Supply and What Influences AS Hint: What influence the movement of the PPC 1.Level of technology 2.Increase in availability of resources 3.Increase in labour productivity. 4.Increase in competition in the market thereby causing firms to be more efficient. 5.Reducing the minimum wages of labour. 6.Increase in indirect taxation.

AD AS Aggregate Supply (AS) AGGREGAATE SUPPLY & SUPPLY SIDE POLICIES Increase level of technology Increase labour productivity Increase availability of resources Increase market competition Increase in taxation!? Increase level of technology Reducing minimum wages

Effect of Lowering GST or Increasing General Taxes ( a SS-Policy) on Aggregate Supply AD AGGREGAATE SUPPLY & SUPPLY SIDE POLICIES AS0 GPL Y An increase in (or also called a producer tax) will increase the cost of production of firms in the country and this will shift the AS curve to the left.. GPL1 GPL0 indirect tax general tax AS1 AS2 GPL2 A decrease in increases the profit of firms. This causes them to have more funds to invest in technology and R&D and shifting the AS to the right

AGGREGAATE SUPPLY & SUPPLY SIDE POLICIES NATIONAL INCOME ACCOUNTING Demand Side Policies Any government policies that government implement that can affect the aggregate demand to increase or decrease are called demand-side policies. Demand Side Policies Consist of: -Fiscal Policies : a. Government influencing AD/GDP via increasing/decreasing taxes. b. Government influencing AD/GDP via increase/decreasing government spending (G) - Monetary Policy: a. Government influencing AD/GDP via increasing or decreasing money supply. b. Increasing, decreasing the interest rate.

AGGREGAATE SUPPLY & SUPPLY SIDE POLICIES Supply Side Policies These supply side policies are often implemented by government and they lead to: 1.Lower cost of production – Government lowers tax 2.Lower wages – Government lowers the minimum wage for workers. 3.Greater efficiency by making the market more efficient – Government reduce power of monopoly and allows more competition into the market. 4.Increase productivity – government give grants/subsidies to firms to send workers for training to upgrade skills. 5.Increase grants by government to firms to indulge in Research and Development so that firms can use higher technology. 6.Government increase factors of production in a country.

Can supply side policies create EG and lower inflation at the same time? AGGREGAATE SUPPLY & SUPPLY SIDE POLICIES AD AS1 GPL GPL2 GPL1 GDP2 GDP1 Yes. Supply side policies can give rise to greater economic growth, greater standard of living while at the same time lowers inflation. As such supply side policies can be better than demand side policies at times. AS0 Y

AGGREGAATE SUPPLY & SUPPLY SIDE POLICIES AD AS GPL GPL2 GPL1 GDP2 GDP1 Q1. Using an AD/AS diagram, explain how government could use a supply side policy to increase economic growth and the standard off living. (quote examples of ss-side policies) (Standard of living – refers to the level of material and non material well being of a population of a country) When government uses a supply side policies like give grants to train workers to be more productive or allow more competition to make the market more efficient, this shifts the aggregate supply curve to the right (outwards) thereby increasing economic potential of the economy. This thus will increase the GDP of the country from GDP1 to GDP2 giving rise to economic growth and ultimately an increase in standard of living

AGGREGAATE SUPPLY & SUPPLY SIDE POLICIES AD0 AS GPL GPL2 GPL1 GDP2 GDP1 Q2. The Chinese economy is suffering high inflation owing to a decade of economic growth. Assess the best policies that government can embark to lower inflation. Hint: 1.You must first explore demand side policies and how it reduces inflation 2.Explain the disadvantage of using demand side policy. 3.Consider the use of ss-side policies and why it is more advantages. GDP0 AD1

AD Aggregate Supply (AS) AGGREGAATE SUPPLY & SUPPLY SIDE POLICIES AS