The economic performance of a country is determined by a country’s efficiency in managing its macroeconomic objectives. An economy with high level of performance should have low interest rates and unemployment, equity of income distribution, balance of payments and a projected economic growth. When an economy has fulfilled these objectives, it will function at optimum efficiency. In order to attain or equilibrate an efficient economy, supply side and demand side policies can be used.
Supply side policies are those policies that affect the aggregate supply of the economy. The aggregate supply the They are implemented in order to increase the amount of 'supply' that is capable of being produced over the long term. They improve the productive potential of the economy.
Supply side policies are generally categorized into two classifications: market oriented supply side policies and interventionist policies. Market oriented policies (unlike interventionist) operate with minimal governmental interference. They are designed to increase incentives for labor; hence, the productivity of the economy. These policies include privatization, deregulation, reduction in corporate and household income taxes and various labor market reforms.
Interventionist policies, on the other hand, encourage the government to play a fundamental role for contributing towards economic growth. They are designed to improve the quality and quantity of labor. Policies include legislations against trade unions, research and development, education and training, unemployment benefits, provision of infrastructure and support.
Like supply side policies, demand side policies play an active and substantial contribution to an economy. To stimulate economic growth the government uses expansionary demand side policies. Expansionary demand side policies can manifest