Final answer:
Supply-side policy aims to permanently shift the aggregate supply curve by enhancing the productive potential of the economy, leading to increased output. These policies differ from temporary demand-side policies that have a short-term focus, emphasizing long-term economic growth and stability.
Step-by-step explanation:
The question addresses whether supply-side policy aims to shift the aggregate supply curve permanently, and the answer is true. Supply-side policies are designed to improve the productive potential of the economy and lead to a rightward shift in the long-term aggregate supply curve, increasing potential output. These policies can include, for example, tax reforms, regulatory changes, and investments in education and infrastructure. Unlike temporary fiscal policies, which are intended to have a short-term impact, supply-side policies are meant to create permanent improvements in economic productivity and efficiency.
Keynesian economics primarily focuses on manipulating aggregate demand to fight unemployment and inflation, typically through expansionary fiscal policy such as tax cuts or increased government spending, which are often temporary measures.
However, for long-term economic growth and stability, supply-side policies are crucial because they enhance the economy's ability to produce goods and services, which can lead to sustained economic growth without the accompanying inflation that can occur if only aggregate demand is increased.
Structural changes and the long-term nature of supply-side policies mean that their results are not immediate and require time to take full effect. Nevertheless, the persevering impact of these policies on the aggregate supply curve is an essential component of achieving a healthy, growing economy.