Economic Analysis of UK Supply-Side Policies for Business Growth

This report provides an analysis of the UK's supply-side policies and their impact on economic growth. It begins with an introduction to business economics, followed by an overview of the concept of economic theory in the UK, highlighting the impact of the financial crisis and government policies such as tax reforms and initiatives to attract foreign investment. The report then delves into the analysis of supply policies implemented by the UK government to facilitate economic growth, differentiating between free market and interventionist policies. It discusses various supply-side challenges, such as productivity gaps and unemployment, and examines specific policies like tax concessions for renewable energy and infrastructural investments. The rationale behind these policies, including their impact on inflation and unemployment, is explored, along with a critical assessment of their effectiveness and long-term effects. The report also includes graphical representations to illustrate the impact of supply-side policies, and how they influence production possibility frontiers and aggregate supply. The role of innovation, technology, and capital investment is also discussed. The report concludes by emphasizing the importance of supply policies in the UK, including initiatives to increase productivity, promote competition in labor markets, and develop human capital. The assignment also explores the significance of performance-related bonuses and incentives to enhance employee dedication and reduce turnover rates, thereby contributing to economic development in the UK.

ECONOMICS FOR BUSINESS 2, UK
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TABLE OF CONTENTS
Introduction......................................................................................................................................3
Concept of economic theory in UK.................................................................................................3
Basic growth theory with examples.................................................................................................5
Analysis of supply policy by UK government to facilitate economic growth................................7
Conclusion.....................................................................................................................................17
Reference List:...............................................................................................................................18
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INTRODUCTION
Business economics is generally a field an applied economics. It deals with an analysis of
business organizations. It uses the concepts of economic theory as well as quantitative methods
to analyze various factors associated with business activities. It consists of analysis as well as
discussion of various factors towards supply policies as well as impacts associated with it. This
study lays focus towards the explanation of theories towards supply policies. It offers
explanation regarding supply policies of the British government towards economic growth as
well as well as development this deals with analysis of factors associated top economic growth
and development
CONCEPT OF ECONOMIC THEORY IN UK
Growth of British economy
Financial crisis has slowed down the growth of British economy. Since 2013 it has been
growing constantly. It has encountered growth every quarter from the year 2013. The policies of
the British Government towards a growth of economy include revision as well as reforms to the
Tax systems in the UK. It includes initiatives towards making as well as developing the UK an
attractive place to start the new business as well as foreign investment. The policy of the
government of UK includes reduction of corporation Tax by 20% from the year 2015.
GDP
Figure 1: GDP rate in the UK
Source: (www.tradingeconomics.com ,2017)
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The policies of the British Government focus on increasing the economic growth by
increasing the demand policies as well as supply policies. The policies are directed towards
increment of demand policies includes the establishment of Fiscal policy; it consists of tax
reduction and cutting rates of interest. Vahlne et al. (2014, p.500) opined that the policies of the
British Government towards supply side include privatization, reduction in taxes, trade
agreements. Improvement educational policies, improvement infrastructure facilities are some
other factors. The policies of the government are directed a way towards increment of foreign
investment associated to education, tourism as well as business activities
ANALYSIS OF SUPPLY POLICY BY UK GOVERNMENT TO
FACILITATE ECONOMIC GROWTH
Supply side policies are highly significant that government authority undertakes for
increasing productivity level and shifting aggregate supply to the right. From assessment, it has
identified that supply side policies can be distinguished into two types such as free market and
interventionist. On the basis of free market policies, by placing emphasis on the aspects of
privatization, deregulation, income tax reduction, flexibility in the labor market, free trade
agreement etc UK government can facilitate high economic growth (Policies for Economic
Growth, 2018). On the other side, interventionist policies include public sector investment in the
infrastructural aspects. In addition to this, it also includes education, vocational training and
health spending. Hence, by making focus on all such aspects UK government can enhance the
level of economic growth.
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Figure 2: Supply side policy curve
Source: (Supply Side Policies, 2018)
There are several supply-side challenges which take place in UK economy such as
persistent productivity gap, high unemployment, lower GDP growth trend, low investment and
research. Hence, with the motive to prevent such issues several government supply-side policies
are undertaken by UK government. For increasing the level of investment in renewable energy
capacity tax concessions are offered by UK government to the businesses investing money in
carbon technologies. In addition to this, UK government has also introduced public investment
plans such as London Cross Rail project and other national infrastructural plan. Hence, for
ensuring high level of economic growth emphasis has placed by UK government on the
privatization of royal mail, reduction in tax obligations pertaining to shale gas, patent box &
corporate activities, launching of national infrastructural plan and green investment bank
(Supply-Side Policies, 2018). All these aspects clearly show that UK government lays focus on
employing supply side policies for ensuring high economic growth and development.
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The rationale behind undertaking supply side policies by UK government to reduce the
level of inflation as well as unemployment and thereby ensures economic growth. However,
supply side policies are criticized on the basis of several aspects such as it takes considerable
time in relation to giving results (Cohen‐Setton, Hausman and Wieland, 2017). For instance: If
UK government invests money for education and training then for leading higher productivity
there is need to wait for several years. Along with this, during recessionary time period, supply
side policies do not offer suitable results. Moreover, in such condition, supply side policies do
not provide high level of assistance in resolving fundamental issue such as aggregate demand
deficiency under recessionary period (Karunanithi and et.al., 2017). Hence, it can be depicted
that, in recession, supply side policies such as labor market flexibility and investment
encouragement help in enhancing growth but to some extent. On the other side, Rémuzat and
et.al., (2017) stated that supply side policies undertaken by UK government such as privatization,
reduction in union power, lower income tax rates are highly significant. Graph depicted above
clearly shows that after the period of 2008, GDP of UK declined significantly. Hence, for
revitalizing such level supply side policies were undertaken by the government. In 2014, GDP of
UK increased from 22367.13 to 2998.83 respectively.
Impact of prominent supply side policy
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Figure 3: Impact of prominent supply side policy
Source: (Supply side policies and PPF, 2018)
Interpretation: The above diagram shows that when supply side policies are effective
then aggregate supply shifted from S2 toS1.
Long term effects of supply side policies
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Figure 4: Long term effects of supply side policies
Source:(Supply side policies and PPF, 2018)
Interpretation: Graphical presentation reflects that, in short run, supply side policies
influence short run aggregate supply. Increase in aggregate supply shift can be seen in the above
graph from SRAS 1 to SRAS 2. On the other side, in long run, aggregate supply curve shifts
from LRAS 1 to LRAS 2.
PPF and AS/AD diagrams
Production possibility frontier (PPF) curve depicts maximum outcome or possibilities
when all the inputs are used efficiently. PPF assumes that technology is constant and resources
will be used efficiently. Further, supply side policies imply for the one that enhance supply of
goods and services within the economy. Hence, PPF & supply side policies are linked with each
and play a vital contribution in economic growth. PPF with an effectual supply side policy can
be said to when it capabilities are shifted from A to B. The below mentioned graph shows
resources which are available within the country and maximum level of output produced from
such resources.
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Figure 5: PPF with supply side policy
(Source: Supply side policies and PPF, 2018)
Innovation and technology
UK government can enhance economic growth by using interventionist supply side
policy such public investment. Moreover, technological innovation enhances the quality of
individual’s life and thereby overall environment as well as economic growth. By doing
research, it has assessed that the main motive of government is to make Britain as the best place
in terms of innovation. Government authority has also recognized innovation and technology as a
key driver for economic growth. Hence, high level of economic growth can be ensured in UK by
the government through placing emphasis on innovation and technological aspects. Thus,
through the means of vocational training high level of technological advancements and economic
growth can be ensured.
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Effect of increase in capital investment
(Source: Changes in short run AD curve as per supply side policies, 2018)
Figure 6: Effect of increase in capital investment
It presents that in the case of long run, investment level will place positive impact on the
economy’s capacity in relation to producing goods or services. This in turn results into the shift
in LRAS curve to the right. Along with this, it also contributes in the reduction of production
cost because technological advancement enhances efficiency level to a great extent and thereby
facilitates reduction in expenses. Consequently, SRAS curve shifts from left side to the right and
placed positive influence on economic growth.
Supply policy by the British government lays emphasis as well as importance to supply
policies. Policies related to supply are developed as well as directed such a way towards. Policies
related to supply consideration policies by the British government lays importance towards the
introduction of policy towards supply development. Policies developed by the British
government consist of various programs as well as factors towards increasing the productivity of
UK and also its ability to produce. Increase in productive nature of the British government plays
an important role towards increasing foreign investment as well as development. The
Government if the UK a consideration of various factors as well as research lays emphasis
towards the development of policies related to supply towards economic growth.
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The Government of UK may consider the system of taxes towards offering sufficient
amount of initiatives towards increasing output rather than changes in demand policy. The policy
of the government on reduction of direct taxes is stated. Hoejmose et al. (2013, p.620) mentioned
that taxes also include the corporation as well as income taxes. Low taxes associated with
income will favor many of many middle-class families as well as middle-income earners. Lesser
corporation taxes give importance to the entrepreneurs to start the new business. Development of
business will impact a lot towards the economic development of UK.
Development, as well as implications of rightful business functions, impacts a lot of
business development. The impacts associated with this practice involve foreign revenue
generation. It will also contribute towards economic stability as well as development in the UK
Supply policies devised by the British government are directed towards development as well as a
promotion of competition toward the labor markets. The policies by the British government in
this regard basically involve practices as well as initiatives directed towards removal of
restrictive practices. Removal of restriction on various matters as well as practices lay emphasis
towards the development of productivity, which lead to overall development of the economic
policies by the government of UK, is directed towards mobility as well as work freedom to
laborers lays sufficient importance towards labor productivity.
The productivity of labor will result from an increase as well as development in a
production process. The productivity of labor will impact a lot towards supply factors. It will
lead towards increased supply considerations. An addition to the factors, it will also promote
labor flexibility. The benefits associated with impacts of more labor results in the increase in
quality as well as a quantity of products with a shorter time period.
The government can take initiatives towards increasing as well as the development of
human capital. Introduction, as well as exposure to better education as well as better learning
environments, contributes a lot towards the development of skills as well as talent. In addition to
that better education system results in flexibility as well as the increase in mobility. Investment
by the British government on development will lay emphasis towards development as well as
improvement of labor productivity as well. Investment in the development of human capital lays
focus towards the future economic development in the UK. The Government of UK may spend
sufficient amount of money directly or by hiring private suppliers. The Government in the UK
lays sufficient importance as well as emphasis towards determination as well as the
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establishment of quality standards for various respects. The standards are established by the
British government to ensure better quality as well as value for investment
The Government of UK in order to further increase human productivity lays emphasis
towards the application of performance related bonus as well as incentives from time to time
result in better performance as well as the dedication of the employees. Initiatives by the British
government on performance-based also results in low turnout rates of employees. Less turnout of
employees results in more productivity which contributes towards economic development in the
UK
The British government, in order to promote supply policy, lays emphasis towards the
encouragement of locals rather than bargaining on central pay. Pay rates on the basis of national
payment practices impacts towards the reflection of local condition as well as situations, this
factors reduces productivity associated with labor. For instance, in Royal Postal service an UK,
payment rates of postman do not reflect certain facts related to the shortage of supply on the
basis of availability of labor. The supply of postman in certain areas may be deficient and surplus
in certain areas. Different as well as variation of rates in various place in the UK results from an
effective mobilization of postman whenever necessary.
The administration of UK lays emphasis towards improvement well as the development
of supply-side performance. It offers necessary assistance to firms in reference to latest as well as
innovative technologies. Investment, development as well as improvement a technology plays an
important role towards the overall development of the organizational productivity. Application,
as well as innovation of latest technologies, contributes a lot towards development in
productivity. Innovation, as well as technology, lays importance towards the development of
high-quality products. Fidrmuc et al. (2014, p.1306) mentioned that good quality products
coupled with innovation leads towards increase in foreign investment resulting an increase in
economic development
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