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The purpose of supply side policies is to lower the rate of inflation and reducing price levels while still increasing the real GDP. Supply side policies are policies made by the government aimed at increasing aggregate supply. The government may introduce various types of policies that aim to increase the quantity and quality of labor and of capital. Many such policies focus upon incentives for the companies. For example, a government may give a company a reduction in tax. A government may do this if they believe that the company will either invest in capital or labor. With the money saved from taxes a company has many options, they can hire more people or train their current staff. Both these methods will increase the productivity of the company. Another way a company can increase production is to invest in capital (machinery and technology). An example of this is if the Canadian government gave Ford a tax break. Ford in turn would probably invest in their machinery and make it more effective and perhaps train their workers. Both of these things would in turn shift the AS to the right, as in the diagram. This theref...
