Evangel's IB Economics Blog

How can demand and supply side policies help people like W. Jorgensen?

A private businessman W. Jorgensen is worried about the decreasing demand of his company’s cars. One of the biggest cost of his company is labor force. Thus, he is seemingly quite happy about the unemployment happening this moment.

Eco-friendly car sales (Picture by Holbrook)

As he wishes, the government can use supply side policy to reduce the payment to unemployed workers so that they are more willing to accept works for less money. This way, more unemployed people may not depend much on unemployment benefits and will be more willing to be employed for lower income. The government can also increase provision of training and better health so that the workers are more efficient in the long term.

In terms of demand-side policies, the government can initiate a project such as “Cash for Clunkers.” These programs encourage people to buy new eco-friendly automotive. Through this program, the government can aid the private car companies such as Jorgensen’s. However, to implement these programs, the government needs to reallocate their expenditures in order to provide money for those who get rid of old, oil-sucking cars.