Supply-side economics

By:

James Knight

James is a lead editor for Invezz, where he covers topics from across the financial world, from the stock… read more.

Updated: Aug 20, 2021

Ad disclosure

Invezz is an independent platform with the goal of helping users achieve financial freedom. In order to fund our work, we partner with advertisers who compensate us for users that Invezz refers to their services. While our reviews and assessments of each product on the site are independent and unbiased, brands may pay to appear higher up our table rankings or place ads in specific areas of the site. The order in which products and services appear on Invezz does not represent an endorsement from us, and please be aware that there may be other platforms available to you than the products and services that appear on our website. Read more about how we make money >

An approach to macroeconomics which became popular in the late 1970s and which emphasizes the importance of aggregate supply in determining the levels of prices, income, employment, and economic growth. Supply-side price shocks refer to events and/or circumstances which cause the price leve! to rise in the absence of increases in aggregate demand. A series of supply-side shocks such as oil price rises made by O.P.E.C., food shortages, reduced productivity and lower investment are biamed for much of the stagflation of the 1970s. The emphasis on supply-side economics has led to a set of policy proposals quite different from the keynesian prescriptions. Saving is to be encouraged to permit investment to take place at a higher rate; taxes should be lowered to encourage work effort and risk­taking; social security payments should be adjusted to encourage labour mobility.

Reference: The Penguin Dictionary of Economics, 3rd edt.