2. Macroeconomic Policy - Supply-Side Policies Flashcards
What are supply-side policies?
Policies that aim to improve economic performance by creating competitive and efficient markets and through interventionist policies.
What are interventionist policies?
When the government intervene and sometimes replace free markets.
What did non-interventionist policies do, give some examples.
They free up markets, promote competition, and efficiency and reduce the economic role of the state.Tax cuts to incentivise work saving and investment.Privatisation, marketisation and deregulation. Welfare benefit cuts to reduce voluntary unemployment.
Where the supply-side improvements them from?
Often from the private sector when entrepreneurs realise the need to improve efficiency to survive and make profits.
What is the Laffer Curve and what does it show?
It’s a tax with total tax revenue on the y axis and the percentage of average tax rate on the X axis. It shows the government tax revenue is highest when the average tax rate is 50% because at 0% there is no tax collected but at 100% there is no incentive for people to produce output to be taxed.
What is the trickle-down affected?
The idea that the rich benefit most from supply-side tax cuts but they respond to this by employing more working class people so they also benefit eventually.
What are the three key areas supply-side policies can be implemented in?
Industrial, labour market measures, financial or capital market measures.
What supply-side policies can be implemented in the industrial area?
Privatisation, marketisation, do you regulation and internal markets.
What supply-side policies can be implemented in the labour market measures area?
Little rate of income tax, lower state welfare benefits, reducing the power of trade unions, more flexible pension arrangements and increasing the quality of training of labour.
What are the supply-side policies that can be implemented in the financial capital markets measures area?
Do you regulating financial markets, encouraging saving, promoting entrepreneurship and decreasing public spending.
What are the evaluation points of supply-side policies?
Long time lags.May widen gaps between high and low income groups. Will also have demand side fiscal effects that may be worsens or exaggerated by the multiplier effect.May work better as part of the policy combination rather then on their own.They may have high initial investment cost.
Which fiscal policies overlap with supply-side policies and what are the arguments surrounding need?
Some people argue that if you lower income tax and the worth of peoples wages goes up their working hours go up and the productivity will be higher however some others say that when you get to a certain level of income people may stop working so much bc they don’t need to and have more leisure time.
