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What are supply side policies?

Supply side policies are those that improve the supply side of the economy. In other words, they are government policies that increase the amount of 'supply' that is capable of being produced over the long term. They improve the productive potential of the economy. Diagrammatically, it can be illustrated by an outward shift in the production possibility frontier (PPF), or a shift to the right of the long run aggregate supply curve (LRAS curve). In the next two sub-sections you will see that Keynesian and Monetarist (and classical) economists disagree about the need for these policies. First we shall look at some examples of these policies. They can be split into those to do with the product market and those linked to the labour market.