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.
Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >