1. IN GROUPS OF 3 - 4 DISCUSS AND ANSWER THE QUESTIONS BELOW. WHAT IS AGGREGATE SUPPLY? WHAT DOES SUPPLY SIDE REFER TOO? WHAT WOULD SUPPLY SIDE POLICIES BE? HOW COULD THESE POLICIES INFLUENCE SUPPLY?

2. SLO: Describe supply-side policies and apply then to economic models of growth

3. SUPPLY SIDE MICRO-ECONOMIC POLICY Supply side policies will be focused on encouraging people to produce (supply) goods and services e.g.  Lowering income taxincome tax  Lowering capital gains tax rates,capital gains tax  reducing regulation ( removing rules that restrict producers) According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices. Supply side= Policies that are directed at influencing supply in markets.

4. NZ SUPPLY-SIDE POLICY HISTORY Tended to concentrate over the past 20years on state sector reform (Selling of government owned enterprises) and increasing deregulation of industry. Arguments for supply side policies  The private sector producers can operate more efficiently than the state sector can.  Private sector producers operate more efficiently with fewer rules and regulations  State resources are more appropriately used to provide public and merit goods (health, education, roads, and welfare) than private goods (banking and communication)

5. Impact of micro-economic reform on growth More efficient producers Lowers cost of production Increased production = Increase in GDP = Economic Growth

6. EXAMPLE. PRIVATISATION OF TELEPHONE SERVICES Privatisation =Transferring ownership from the government to private firms. Quantity Price $ D S Qe Se Privatisation often lead to reduced costs for producers S1 Q1 S1 Market for Goods

7. HOW DOES PRIVATISATION LEAD TO DECREASED COSTS FOR PRODUCERS? There is a difference in incentives between public and private sectors. A tax-funded government business has a monopoly (the only producer in the market) and thus has guaranteed revenues, regardless of performance. And its workers are protected both by unionization and by a civil service system which virtually guarantees continued employment and pay increases, regardless of performance. A private firm in a competitive market must win over its customers by offering them a superior combination of performance and price. If it fails to deliver adequately, its customers can go elsewhere. Private firms producing public services – even firms which competitively win exclusive contracts for a number of years – therefore operate far more efficiently than government monopolies.

8. MICRO ECONOMIC REFORMS IN 1980S-1990S The Financial Sector  Removed interest rate controls  NZ dollar floated Government departments co-oporatised then privatised  Post office split to – NZ Post, Post bank and telecom  Railways were corporatised then sold Labour Market freed up  Employment contracts act 1991 Trade protection policies removed  Removal Tarriffs and Quotas Welfare benefits reduced Health Sector Reformed  Try to make it operate more efficiently using business type model

9. EXERCISE BOOKS PAGE 154-155 Read page 153-154