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A Level Economics: Macroeconomics > 13.2 Supply-side Policies > Flashcards

13.2 Supply-side Policies Flashcards

1
Q

What are supply-side policies?

A

Government economic policies which aim to make markets more competitive and efficient, increase production potential and shift the LRAS to the right

(Supply-side fiscal policy is the most important type of supply-side policy but there are also non-fiscal supply-side policies)

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2
Q

What is supply-side economists?

A

Branch of free market economists arguing gov policy should be used to improve competitiveness and efficiency of markets and through this the performance of the economy

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3
Q

What is the central idea of supply-side economics?

A

A tax cut should be used to creative incentive particularly those of labour and leisure

Not stimulate AD in Keynesian style

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4
Q

What are supply-side improvements?

A

Reforms undertaken by the private sector to increase productivity so as to reduce costs and become more efficient and competitive. Supply-side improvements often result from more investment and innovation undertaken by firms without prompting from the gov

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5
Q

How are supply-side improvements and supply-side policies different?(5)

A

-supply-side improvements are undertaken by the private sector itself as a result of entrepreneurs realising they should make their firms more efficient and competitive to survive and make profits.

-govs supply-side polices are part of means of achieving desired outcome

-in the free market view by financially propping up competitive firms interventionists supply-side policies are often counter productive as they don’t bring about supply side improvements

-however interventionist supply side policies can provide training,infrastructure and other external economies that reduce costs

-pro-free market economists generally prefer non-interventionist supply-side policies. By liberalising markets and setting the, free, govs peruse the role of the enabler rather then the provider

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6
Q

What are interventions policies?

A

Occur when gov intervenes and sometimes replaces free markets.

Interventionist supply-side policies include gov funding of research and development

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7
Q

What are market-based supply-side policies?

A

These policies make up markets and promote competition and greater efficiency and reduce the economic role of the state

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8
Q

What is the overall aim of supply-side policies?

A

Shift LRAS to the right

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9
Q

What is the associated benefits of shifting the LRAS to the right?(4)

A

Lower inflation
Lower unemployment
Improved economic growth
Improved balance of payments

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10
Q

What is privatisation?

A

Involves shifting ownership of state-owned assets to the private sector

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11
Q

What is marketisation?

A

Shifting provision of goods and services from the non-market sector to the market sector

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12
Q

What is deregulation?

A

Involves removing previously imposed regulations

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13
Q

Examples of supply-side free-market policies?(8)

A

Privatisation
Deregulation
Marketisation
Reduce welfare benefits
Free-trade agreements
Flexible labour markets
Income tax cuts
Flexible labour markets (reduce power of retrace unions)

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14
Q

Examples of interventionist supply side policies?(5)

A

Public sector investment
Education
Vocational training
Housing supply
Health spending

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15
Q

What is the aim of free market supply side policies?

A

Promote entrepreneurship and popular capitalism and replace dependency culture

-creating incentives for workers will increase the potential output of the economy

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16
Q

Diagram for the laffer curve?

A

High rates of tax reduce overall tax rev as it creates disincentives

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17
Q

What will successful supply side policies do to LRAS

A
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18
Q

What does a reduction in tax rates do?

A

Stimulates economic growth and can lead to more tax revenue in the future

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19
Q

Most supply-side economists are?

A

Free market

20
Q

What are the key aspects of supply side macroeconomics

A

Economy’s aggregate labour market
Long-run vertical Philips curve
Long-run AS curve

21
Q

Diagram for aggregate labour market after successful supply side policies

A

Equilibrium employment EN1 at wage Wfe, shift in AS and AD increases employment to En2 without increasing wage rate(no wage inflation)

22
Q

Diagram for long-run vertical Philips curve after successful supply side policies

A

Natural level of employment decreases (sa,e as normal capacity level of output), allows the SRAS to shift right

23
Q

Diagram for LRAS curve after successful supply side policies

A

As a result of a reduced natural rate of unemployment(produce more output without risk of inflation)

24
Q

Where does monetary policy come into all this?

A

Makes sure there is just enough demand to absorb extra output produced by the supply side of the economy, and to maintain public’s confidence

25
Q

What are the two main ways the government borrows?

A

Selling short-dated debt or treasury bills
By borrowing long term by selling government bonds or gilts

26
Q

How do treasury bills create money?

A

Banks buy them and create a deposit

26
Q

How are new gilts sold?

A

To non-bank financial institutions (such as pension funds and insurance companies)-govs may have to increase interest rates on gilts to sell them

27
Q

Borrowing generally results in(2)?

A

Inflation
Increased interest rates (which May crowd out private sector investment)

28
Q

How do free market economists believe free market supply side policies make markets more competitive?

A

Reducing business cost of production and by reducing monopoly profits, reducing cost push inflationary and demand pull inflationary pressures

-also benefit balance of payments as increased price competitiveness leads to technology investment making more successful in global markets

29
Q

Diagram for expansionary fiscal policy

A

Cuts on spending free resources for private sector workers will loose pull of sector jobs and gain them in the private sector

-from Tory Chancellor George Osborne 2010

30
Q

What is trickle down economics?

A

tax breaks and other beneficial policies for companies and the higher earners in society will put more money into the economy, which will eventually benefit everyone.

31
Q

Supply side policies are based on the microeconomic policies of?

A

Self interest and entrepreneurship

32
Q

Diagram for microeconomic labour supply curve

A

Workers respond to a higher wage by supplying more labour

33
Q

Describe this diagram

A

Reduction in income tax creates incentive for workers to supply more labour, however some people value leisure time and will work less to have the same overall amount of money

34
Q

What are the examples of microeconomic supply side measures?

A

-industrial policy measures
-labour market measures
-financial and capital market measures

35
Q

What are the examples of microeconomic supply side measures?: industrial policy measures?(5)

A

-privatisation

-marketisation(commercialisation)

-deregulation

-internal markets(substitute for privatisation-form of commercial discipline and to improve efficiency)

-subsiding spending on research and development:

36
Q

What are the examples of microeconomic supply side measures!

Labour market measures(6)

A

-lower rate of income tax

-reducing state welfare benefits to average earnings

-changing employment law to reduce the power of trade unions

-repealing legislation which limits employers freedom to employ

-more flexible pension arrangements

-improving training of labour

37
Q

Labour market measures:
Lower rate of income tax

A

Marginal rates of income tax can be reduced to create labour market incentives, and tax thresholds or personal tax allowances raised to remove the low-paid from the tax net

38
Q

Labour market measures
Reducing state welfare benefits relative to average earnings

A

Lower benefit levels create incentives to choose low-paid unemployment in preference to claiming unemployment-related benefits

(Welfare benefits can make it more difficult to claim, and available to claim genuinely looking forward

39
Q

Labour market measures
Changing employment law to reduce the power of trade unions

A

Possible changes include: removing trade unions’ legal protection, restricting their rights and extending the freedom for workers not to belong to unions Pam and for employers not to recognise and negotiate with unions

40
Q

What are the examples of microeconomic supply side measures!

Financial and capital market measures(4)

A

-deregulating financial markets
-encouraging saving
-promoting entrepreneurs
-reducing public spending and public-sector borrowing

41
Q

What are the policies free market economists believe can stimulate market forces?(3 ways)

A

-tax cuts to create incentives to seek profits and work harder

-privatisation to unleash market forces by taking business out of the public sector

-deregulation to encourage enterprise and increase competition

42
Q

Interventionist supply-side polices are more

A

Short term

43
Q

Free market supply-side pickles are more

A

Long term

44
Q
A

A Level Economics: Macroeconomics (25 decks)

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