Economics: Two Roads to Growth, Unequal Rewards

Supply-side policies aim to expand an economy's productive capacity rather than shift aggregate demand. In the PPC model, with capital goods on the vertical axis and consumer goods on the horizontal, successful supply-side measures shift the curve outward from PPC1 to PPC2 — the economy can produce more of both goods from the same factor endowment. The two policies work through different channels. Policy A raises human capital quality via early childhood education and vocational training, lifting labour productivity growth from 0.5% to 1.5% per year and shifting the PPC outward. Policy B improves allocative efficiency by letting wages adjust to market-clearing levels, and productive efficiency by enabling firms to redeploy labour toward higher-productivity uses. Together they illustrate how supply-side policy raises potential output, though the distributional effects on firms and low-skilled workers differ sharply.