Assignment: Economics for Business

ECONOMICS FOR BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Supply side policies with its uses and impact on economic growth............................................1
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
This report will give the basic framework of market oriented and interventionist supply
side macroeconomic policies which government should implement and for promoting and
achieving the main objectives of the supply side policy is on the basis of enterprise, technology,
efficiency, flexibility, mobility and incentives the objectives like economic growth, employment
and decreasing the inflation. Supply side policies are the attempts made by government for
increasing productivity and shift in aggregate supply to positive side or in the right direction. It
also provides details about the basic growth theory with their equations and its effects on the
economy. The impact of successful supply side policies on the economy has also been reported
in this paper. Benefits of supply side policies are lowering inflation, lowering unemployment,
improved economic growth and improved trade and balance of payments are briefed in this
topic. The challenges which are faced by UK government are also elaborated along with the
supply side policy for facilitating economic growth with the basic examples.
Supply side policies with its uses and impact on economic growth
The five equations which are based on the present framework will help in understanding
the modern economic growth and its process. Equations are as follows : Aggregate production
function, Saving equation, relation between saving and investment, Capital stock changes over
the time and Labour supply equation.
 Aggregate production function is the production function for the whole economy. it can
be phrased as Y-F(K, L) where Y is considered as total output or national income, K is
considered as capital stock and L is known as labour supply. The function of labour force
and total stock of capital is the aggregate output. The expansion of output is along with
the accumulated physical capital and growth of labour force (Awrey, 2013). There are
many growth models which are developed in specific time, and they always get to know
about the total output's expansion in the context of changes in L and K. any new
investment in factories, roads, machinery, equipment and other infrastructure are
included in Capital stock. If there is rise in capital stock, labour force or maybe both then
it will directly helps in the growth of economy
 Saving Equation – In the assumption that saving is always a fixed proportion of the
income, then the aggregate or total saving is calculated.
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S = s x Y, In this equation S is considered as total saving, and s is considered as saving
rate which is called as the average propensity to save or APS.
 Relationship between Investment and saving – Its relationship is expressed as S = I,
without foreign trade and foreign borrowing, S i.e. total saving and it is equals to I, i.e.
total investment in closed economy (Boon and Edler, 2018). The main reason behind this
is all-household income is consumed or may be saved while domestic produced services
and goods are either consumed or used for investment purpose.
 Over the time capital stock is changing – It can be determined by factors i.e. depreciation
which slowly falls in the value of capital which is existing and other factor is nUntitled
2ew investment which sums up in capital stock (Fernández-Villaverde, Guerrón-Quintana
and Rubio-Ramírez, 2014). Change in capital stock is considered as Change in K = I-
(dK), here d is considered as rate of depreciation, I is known as increase in capital stock
of every year's new investment and dK is considered as the decrease in capital's stock due
to depreciation of every year by existing capital.
 Labour Supply Equation – It gives the assumption for long run that labour force is
growing with the total population. The equation of the labour supply is,
Change in L = n x L, here n is considered as growth rate of population and labour force both.
Change in L replicates the change in labour force (Supply side policies, 2018).
 By combining all five equations, Change in K = sY-dK
It states that capital stock changes is equal to difference between saving and depreciation, which
gives the change in capital stock and it can be directly put in the equation of aggregate
production.
Usually the supply side policies are considered as micro economic policy whose aim is to
operations of market and industry in more efficient manner and to give contribution to
underlying rate of real national output The main objectives of the supply side policy is on
enterprise, technology, efficiency, flexibility, mobility and incentives t's growth. The main
objectives of the supply side policy is on enterprise, technology, efficiency, flexibility, mobility
and incentives (Hassink and Van den Berg, 2011). In detail it can be explained as to increase the
productivity of labour and capital, improvise the incentives for more work and to invest in skills,
for reducing unemployment occupational and geographical mobility is increased of all labour,
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