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Interventionist supply-side policies

Investment in infrastructure

Improving information and investing in infrastructure will facilitate the firms to produce more and at a more cost efficient manner.  Better infrastructure attracts more investment both domestic and foreign. In the short run increase government expenditure on infrastructure will lead to rise in AD and will fuel inflation, however in the long run it will lead to greater efficiencies and output thus shifting the LRAS to the right.

Investment in human capital

This involves investment in education and training which will raise the levels of human capital. This will, in the short-term, impact on aggregate demand as consumption of certain goods will increase, but more importantly will increase LRAS as labour becomes more skilled and efficient.

Industrial policies

Through various industrial policies focus the government encourage firms to move to areas of high unemployment.

These measures might include subsidies or tax concessions for firms which move, the provision of facilities and improved infrastructure in the depressed area, the siting of government offices in the depressed areas and the prevention of firms expanding in the prosperous ones.

This will have a short-term impact on aggregate demand but, more importantly, will increase LRAS.

Investment in new technology

These policies encourage research and development which will enhance efficiency and output. It will have a short-term impact on aggregate demand, but more importantly will result in new technologies and will increase LRAS.


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