Report: Supply Side Policies and Long-Term Economic Growth

This report delves into the realm of business economics, analyzing aggregate demand and supply, and their relationship with price. It highlights government investment in technology as a driver of long-term growth. The report further examines supply-side policies, including neo-classical approaches with a focus on monetary policies, and the impact of these policies on economic growth. It also explores the components of aggregate demand, the aggregate demand curve, and the aggregate supply curve in both the short and long run. The report covers the role of technology and investment, and the significance of monetary policies in achieving economic stability and growth. Additionally, it presents a comparison between classical and neo-classical theories, emphasizing the importance of human behavior and social systems in business management and economic growth. The report also discusses the three pillars of supply side policy and the role of monetary policies in fostering economic growth.

ECONOMICS FOR
BUSINESS

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
Neo keynsian and classical supply side policies to achieve long term growth...........................1
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Business economics is a field in applied economics which take assistance
of economic theory and quantitative methods to study business and the elements contributing to
the variety of organizational structures and the relationships of firms with its different factors
like labour, capital and product markets (Etchemendy, 2011). This assignment will discuss
aggregate demand and supply along with their positive and negative relation with price. Along
with this focus on government investment and how it is using new technology in attaining long
term growth is given. It will further highlight supply side policies and neo classical which is
mainly focusing on monetary policies.
TASK
Neo keynsian and classical supply side policies to achieve long term growth
Business economics is area of applied economics which study issues related to market
and environment, organisational, financial facing by the company. It analyse subjects such as
expansion, management, strategy as well business organisation. In simple words it can be said
that business economics is necessary concerned with the several judgement of an association.
Mainly it focus on the issues related to the firm and its operation and also to the business
environment. While running an organisation business manager face several issues which can be
solved with the assistance of several economics theories.
Aggregate demand is the entire demand for products and services in the overall economy
as well this is an macroeconomic term because it explain relationship in everything which is
bought in the nation and its price. Although, aggregate demand is sum of consumption,
investment, government expenditure and net exports. Apart from this according to law to
demand it has been analysed that people will purchase more products and services when price
fall down. In simple term it can be said that, AD (aggregate demand) is the overall demand of
goods and services in the economy (Scarborough, 2016). There are five components of the same
and these have inverse relationship with price each and every respond in different manner to
changing price. This can be said like that components of AD have several elastics with the price
level. For example, it can be assumed that over the sea demand is elastic in relation to the price,
because overseas consumers can select from several world-wide suppliers. This makes them
highly sensitive to the price changing of imported goods and services.

Aggregate demand curve shows relation within AD and the price. It is acknowledged that
the curve will incline down from left to right. This is due to all the components of AD (aggregate
demand), except imports, are reciprocally related to the price of goods and services.
(Source: Aggregate Demand Curve 2018)
Formula of Aggregate demand is Consumer Spending + Investment Spending +
Government Spending + (Exports-Imports). Here, Consumer spending is related to goods and
services which can be durable i.e., audio-visual equipments and non- durable both such as
eatable as well drinking items. All these can be consumed or for re-purchase also. Capital
invested is the sum of money which is invested on capital goods like plants and equipments for
producing more products and services so that future needs can be fulfil. Moreover, investment
involve money which is invest on working capital such as stocks of semi-finished and finished
goods.
This is most important government spending or investment on state provided products
and services considering public and merit both goods (Bachmann, Elstner and Sims, 2013 ).
Economic decisions are based on a specific term which determine how much authorised bodies
will spend each year for the development procedure. Government is spending approximately 18-
20% of United Kingdom GDP on products and services as well amount of investment sizeable
Illustration 1: Aggregate Demand Curve

because this will only result in welfare of the economy. For example, spending on infrastructure
facility of United Kingdom by their government will result in providing job opportunities to the
people which directly results in raising living standard of persons, decrease unemployed and
poverty ratio. Apart from this, export of goods and services are the offerings sold overseas are
inflow of demand into circular flow of income and investment added in AD. In the last, Import
are withdrawal of demand from the circular flow of financial gain and spending.
Aggregate supply is determine as exact amount of products and services that are
manufacture as well as supplied by an business firm in over the exact timing. Main objectives of
this process is to sell goods on a given prices level in target economy (Croitoru, 2012). This
process represent AS curve which describe effective relation between price and quantity of total
outputs which an organisation wants to provide to its customers. It also include type of goods as
public, consumer, merit and capital. All these approaches assist to enhance economy valuation
for target growth as well as development. These kind of policies are targeted by government of
the country in order to enhance efficiency of productivity for national growth.
Formula of Aggregate supply: Y = Ynatural + a(P – Pexpected). In this formula, Y
means output, Ynatural is the natural rate of output which exist when all the productive factors
are utilised at their normal rate, a is the constant which is greater than zero, P stands for price
level and Pexpected is the expected price level.
Aggregate supply Cure in both long run and short run: In the short-run aggregate supply
cure is reckon a valid explanation of the supply schedule entire economy in the short run. It is
the period which start immediately after increment in the price level as well that will ends when
input price have enhance in the similar equilibrium to increase in the price level. Apart from this
, during short run period sellers of finished products are receiver of high price for their offerings,
without a proportional enhancement in the expenditure of their inputs. In aggregate supply there
is positive relation with price and supply of goods because of that when price of commodities
increase seller will wiling to supply more (Hodgson and Knudsen, 2010). Whereas, on the other
hand, Long run aggregate supply defines as the time when input price have entirely adjusted to
modify in the price level of final products. In simple terms it can be said for for term growth then
company can supply their products in less price also because at that time customers will purchase
more and more which will result in growth at long term.

(Source: Aggregate Supply (AS) Curve 2016)
Uses of technology by government will result in achieving long term growth because
now a days several new technologies are coming which require investment on it. Such spendings
comes under capital investment of aggregate demand because utilising latest tools and techniques
there is requirement Of investment in monetary form. Moreover, when local authorities spend
their money on bringing new tools and technologies in market which can be used by several
business man's for their daily operations. For using it by private authorities there is need of
investment on purchasing which results in long term growth of economy as well government
both.
Supply side policies are micro economic policies whose aim is to make market and
industries operation in efficient manner and also contribution for faster implicit rate of growth of
real national output (Tan and Floros, 2012). Government mainly believe that improving
performance of supply side is the key element for accomplishing sustained growth without
causing a increment in inflation. It is such a policy which can be applied by private and public
both the sector. Supply side key objectives focus on incentives, technology, enterprise,
flexibility, mobility and efficiency. There are several recent United kingdom government supply
side policies such as growth of the Sunday trading laws and legislation but concern over work
life balance, 24 new regional organisation zones whose main motive is to take benefits of
external economies of scale pull in inwards investment, Increases in the income tax free
reimbursement to £11,000 per year. UK National Infrastructure Plan – range of projects consider
Illustration 2: Aggregate Supply Curve

the latest nuclear power station at Hinkley Point in Somerset. Planned investment of £400 m in
'full-fiber' super-fast wideband and several other also.
Three pillars of Supply Side Policy : Third Pillar is monetary which is states that when
liquidity in the environment increase then it will directly result in purchasing power of the people
living in United Kingdom. For example, If person have high amount of money in their pocket
then they will purchase goods and services from market. In simple term, it can be said that if in
economy there is high liquidity then purchasing power of people living in United Kingdom will
automatically increase. Apart from this out of three pillars in supply side policy monetary is
more important because it involves all the thing related to finance.
Monetary policy is the procedure through which monetary bodies of a nation mainly
currency board, or central bank control the rate of short term borrowing or monetary based also.
By targeting interest or inflation rate to make sure general trust and price stability in nation.
Main motive or goal of this is to contribute for the stability of gross domestic products (GDP),
removing unemployment and for maintaining predictable exchange with several other nations. In
general words it can be said that, monetary policy is that how central bank of the country
maintain liquidity in economy for growth (Bloom and et. al., 2012). This includes checks, credit,
cash and money market which can be mutual funds. Out of these most important is credit i.e.,
bonds, loans and mortgages.
Neo Classical theory is the enhanced or modified version of classical theory in which
behaviour science get involved in the management process. It states that enterprise is social
system and performance of the company effected by the activities of human that can be
employees also. Compare to classical approach neoclassical is best when it is implied.
Points of distinction Classical approach Neoclassical approach
Focus Economic and functional
demand of staff members
Emotion and human qualities
of workers
Structure Impersonal and mechanistic Social system
Application Autocratic management and
strict rule and regulation
Democratic procedure
Emphasize Rationality and discipline Social demand and personal

safety and security
Work goal of workers Maximum rewards and
remuneration
Attainment of company goal
and objective
Concept about men Economic being Social being
Content Bureaucratic management,
scientific management,
administrative management
Hawthorne experiment, human
relation movement and
organisational behaviour
Relation Formal Informal
Nature Mechanistic organistic
Moreover, there are several important elements of neoclassical theory such as individual,
work group, participative management, orientation, motivation, leadership and employee
development (Hannah, 2013). Neoclassical theory of economic growth states that, without
modification in tools and technology their will be no long term growth in the GDP (gross
domestic products) because growth in economy only decline because of technology advancement
stopping. Apart from this saving and investment are increasing because of modification in
technology which results to higher per labour hour.
In this report 1% interest rate is related to both on saving of money as well on borrowing
also. If an individual is gaining on 1% of return on their saved amount then no one will going to
save in such manner. Instead of this, they will spend or invest their money in something other
which is offering high amount of return. Because it is nature of human being everyone want high
amount of outcomes according to the invested amount. Whereas, on the other hand, if interest
amount is less on borrowing then people will borrow more and more money from several
institutions for their commercial and personal both uses. This is due to 1% of interest rate as well
in environment there are several kind of people who need loan for their their needs and wants.
Instead of this many of them are taking because of low interest rate but such rate is provided by
the government related institution or some other private financial institutions (Nelson, 2013).
Such low interest rate will results in long term growth because of increasing loan taking rate and
savings in other high return funds etc. due to this money flow will increase in economy.

Their is wide difference between aggregate demand and aggregate supply description of
this is mention below on the basis of several elements :-
Basis Aggregate Demand Aggregate Supply
Meaning AD (aggregate demand) is
related to the overall value of
the products and services
which all the sectors of
economy involves together for
planning to buy at a given
income level within a
particular period of time
(Schumpeter, 2017).
It means the value of finished
goods and services designed to
produce through all the
production units in the entire
economy taken together during
specific time period.
Components Major components of
aggregate demand (AD) are
net exports, government
expenditure and private
consumption.
Expenditure and savings are
major components of the
Aggregate Supply.
Origin Of the curve Aggregate Demand curve
originates from Y- axis.
Aggregate supply curve
originate from origin.
Relationship with price In aggregate demand there is
inverse relationship with price
because when cost of
commodity is less in such
situation demand will rise as
well vice versa at the time of
increase.
Their is positive relation
within supply of goods and
services with price because
when cost is low supply is low
and if price is high supply is
also high.
From the above difference within aggregate demand and supply has been analysed and it
is also that it will assist in growth of economy for long term. Apart from this, there are several
other things also which gives their wide impact on development of economy.

CONCLUSION
As per the above discussion, report affirm that creativity as well as innovation, both are
the central to attain the competitiveness and growth of business organisation. This not only assist
in acquiring new ideas but also emphasise the management capability procedure of
entrepreneurship and innovation. Through managing demands and opting fundamental models or
techniques such as aggregate demand curve, classical approach, neoclassical approach etc. in
regard of attaining business objectives. By the guidance and application of three pillars of supply
side policy, companies including large and small enterprises can achieve business standard in
significant manner. For the long term growth of economy government have to advance loans on
low interest rate along with on saving also.

REFERENCES
Books and Journals
Etchemendy, S., 2011. Models of economic liberalization: business, workers, and compensation
in Latin America, Spain, and Portugal. Cambridge University Press.
Scarborough, N.M., 2016. Essentials of entrepreneurship and small business management.
Pearson.
Bachmann, R., Elstner, S. and Sims, E.R., 2013. Uncertainty and economic activity: Evidence
from business survey data. American Economic Journal: Macroeconomics, 5(2),
pp.217-49.
Croitoru, A., 2012. Schumpeter, JA, 1934 (2008), The Theory of Economic Development: An
Inquiry into Profits, Capital, Credit, Interest and the Business Cycle, translated from the
German by Redvers Opie, New Brunswick (USA) and London (UK): Transaction
Publishers. Journal of Comparative Research in Anthropology and Sociology, 3(2),
pp.1-13.
Hodgson, G.M. and Knudsen, T., 2010. Darwin's conjecture: The search for general principles
of social and economic evolution. University of Chicago Press.
Tan, Y. and Floros, C., 2012. Bank profitability and GDP growth in China: a note. Journal of
Chinese Economic and Business Studies, 10(3), pp.267-273.
Bloom, D.E and et. al., 2012. The global economic burden of noncommunicable diseases (No.
8712). Program on the Global Demography of Aging.
Hannah, L., 2013. The rise of the corporate economy. Routledge.
Schumpeter, J.A., 2017. Theory of economic development. Routledge.
Nelson, R.R., 2013. National Innovation Systems: It is. In Regional Innovation And Global (pp.
19-34). Routledge.
Online
Aggregate Demand Curve 2018. [Online].Available through
<http://www.economicsonline.co.uk/Managing_the_economy/Aggregate_demand.html>
Aggregate Supply (AS) Curve 2016. [Online].Available through
<https://www.cliffsnotes.com/study-guides/economics/aggregate-demand-and-aggregate-
supply/aggregate-supply-as-curve>