What this lesson teaches
I can explain fiscal, monetary and supply-side policy and judge how well each works.
Syllabus 8843, 3.2.3(b). Macroeconomic Policies: Policy measures and their effectiveness in achieving macroeconomic objectives:; Fiscal policy - How discretionary fiscal policy can influence the level of economic activities and living standards through government spending and taxation; Supply-side policies - How supply-side policies can improve quantity, quality and mobility of factors of production to increase the productive capacity of an economy and hence affect living standards; Monetary policy - How monetary policy can influence the level of economic activities and living standards through the management of exchange rates (case of Singapore) and interest rates
Make a guess
The government funds SkillsFuture courses for workers in growing industries. Which curve does this mainly shift?
- Neither, because training does not change output.
- Aggregate supply, as skills raise productive capacity.
- Aggregate demand, because the government spends money.
Show the answer
Aggregate supply, as skills raise productive capacity.
Better-skilled workers can produce more, so the economy's capacity grows and AS shifts right.
Supply-side policies raise the quantity, quality or mobility of resources, shifting AS right.
Supply-side policies aim to raise the economy's productive capacity by improving the quantity, quality or mobility of factors of production.
Quality: education and training raise skills and productivity. SkillsFuture helps workers retrain throughout their careers.
Quantity and technology: infrastructure such as Tuas Port, research funding, and grants for firms to adopt technology raise capital and productivity. Foreign worker policies affect the size of the labour force.
Mobility: retraining and career conversion programmes help workers move to growing industries. Successful supply-side policies shift AS right, allowing growth without inflation.
- Aim
- Raise the quantity, quality or mobility of resources.
- Examples
- SkillsFuture, infrastructure, technology grants.
Worked example: Helping workers move to new jobs
Workers lose jobs in a declining industry while growing firms need technical skills. A programme combines training, placements with employers and better transport links.
- Training raises the quality of labour.
- Placements help workers move into growing firms: better mobility.
- Transport links reduce geographical immobility.
- Together, they raise productive capacity and reduce structural unemployment.
Watch out for this
Supply-side policies raise AD quickly.
They raise productive capacity (AS), and their effects usually take years.
Check your understanding
Which is a supply-side policy?
- Subsidising training for workers in growing industries.
- Giving cash payouts to households to raise their spending power.
- Cutting interest rates to boost spending.
Show the answer
Subsidising training for workers in growing industries.
Right. It raises the quality and mobility of labour.