Question

As a chief Executive officer of a big multi-national company, you have been tasked to present a report to parliament on how industry captains can contribute to the economic growth of a country. Using the AD-AS (aggregate demand and aggregate supply) model, discuss using the relevant diagrams and at least five examples of supply-side measure that you can recommend to policy makers and the business community in order to stimulate the growth of the organization and ultimately the economy

(Hint – identifying each measure (1 mark each) and explaining each measure carries 4 marks each)

Answer 1

Supply side policies are micro economic policies .The objective of these policies is to ensure efficient working of market and industries and thus bring growth of the economy.These policies increase productivity and make AS shift to the right. Free market supply side policies increase competition .Egs are Privatisation, deregulation ,lower income tax rate ,and less power of trade unions.Interventionist supply side policies are government interference to stop market failure.Shifting AS to the right,will lessen inflation,lessen unemployment ,improve growth of the economy by increasing LRAS and make improvement in trade and as a result in balance of payment too.When firms can increase their productivity,competition increases and exports rises.Examples of supply side measures are Privatisation -that is selling public sectors to private sector;Deregulation -that is to permit new firms to enter the market;flexible labor market which will mean reduction in the power of union,minimum wages , and reduction in regulations,free trade agreement which will reduce trade barriers ,and reduce welfare benefits which will increase the need to get a job.These five policy measures can stimulate the growth of the organization and the economy.