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Economics unit 2 > 20) Supply Side Policies > Flashcards

20) Supply Side Policies Flashcards

0
Q

What is the supply side policies for the labour market focussing on improving

A

⚫️flexibility of the labour market
⚫️aim to increase productivity
⚫️shifting AS curve to the right

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1
Q

What does supply side policies mean

A

⚫️aim to increase potential output of the economy
➡️and shift AS and PPF to the right in the long run

➡️by increasing quantity
➡️or improving quality
➡️of factors of production

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2
Q

How does the supply side policy increase productivity

A

⚫️education and training

⚫️cut income tax rates

⚫️cut benefits

⚫️working family tax credits

⚫️employment legislation

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3
Q

How does education and training improve flexibility and productivity of the labour market

A

⚫️the new deal scheme
➡️takes benefit away
➡️unless people undertake a programme of
➡️work experience and retraining

⚫️extra resources into schools
➡️develop skills of young people
➡️increasing productivity in long term

⚫️nursery care for young children
➡️allows parent to return to work
➡️increasing output in the economy

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4
Q

How is cutting income tax rate improve flexibility and productivity of the labour market

A

⚫️low income tax rates
➡️help to incentivise workers to work longer hours
➡️if they can keep more of what they earn
➡️reduces incentives to stay on benefits

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5
Q

How is cutting benefits improve flexibility and productivity of the labour market

A

⚫️motivates unemployed to find a job

➡️works well with cutting income tax

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6
Q

How does the working families tax credits improve flexibility and productivity of the labour market

A

⚫️tops up the income with low paid workers
➡️with tax credits

⚫️helps remove poverty trap
➡️which is when u can be better off not working
➡️as pay rise can reduce benefits and increase tax paid

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7
Q

How is employment legislation improve flexibility and productivity of the labour market

A

⚫️allow firms to hire and fire workers easily

⚫️if difficult for firms to fire unproductive workers
➡️may stop hem hiring in the first place

⚫️countries with flexible labour market
➡️have lower rates of unemployment
➡️workers have fewer rights

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8
Q

How can trade union legalisation improve flexibility on labour marker for supply side policies

A

➡️used with employment legislation

⚫️include laws to reduce power of trade union
➡️weaker union allow firms
➡️make worker work harder
➡️for less pay

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9
Q

What does the supply side policies for the capital market focus on improving

A

⚫️flexibility of the capital market

➡️by encouraging firms to increase investment ➡️and expand AS

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10
Q

How does the supply side policy encourage firm to invest more

A

⚫️reduce cooperation tax

⚫️nationalised industries

⚫️tax incentives for research and development

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11
Q

How does reducing corporation tax help supply side polices to encourage firms to increase investment

A

⚫️firm keeps more of their profits

➡️which can be used to fund investment in capital goods

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12
Q

How does nationalised industries help supply side polices to encourage firms to increase investment

A

⚫️many national industries where privatised in the 1980s
➡British telecom
➡British airways
➡️water companies like thames water

⚫️companies are now highly profitable
➡️but when nationalised
➡️they made large losses

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13
Q

How is tax incentives for research and development help supply side polices to encourage firms to increase investment

A

⚫️helps reduce competitiveness of UK goods and services

⚫️uk spends less per worker
➡️on research and development
➡️than its competitors
➡️e.g Germany and USA

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13
Q

How is supply side policy effective

A

⚫️increases long run productive potential of the economy

⚫️raise competition of the domestic industries to foreign industries

⚫️remove bottlenecks

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14
Q

How is an increase in the long run productive potential of the economy effective for supply side policy

A

⚫️draw diagram:
➡️increase in AS

Describe it:
⚫actual output increases real GDP
➡️potential output increased
➡️from yfe to yfe1
⚫️price level decreased
➡️meaning decrease in inflation
15
Q

How is raising competition of the domestic industry in relation to the foreign industry effective for the supply side policy

A

⚫️domestically produced goods
➡️become cheaper and better quality
➡️can improve the current account of the balance of payments

16
Q

How is removing bottlenecks to prevent the economy from growing faster effective for supply side policy

A

⚫️if economy is on equilibrium at the full employment level of output
➡️cannot experiance further growth
➡️without rhe AS shift to the right

⚫️is AS does not increase any further
➡️any increase in AD
➡️will purely be inflationary

⚫️draw diagram

17
Q

What are the limitation of supply side policies

A

⚫️time lags between policy being implemented and the outcome of policy in the economy

⚫️expensive

⚫️increase in inequality

18
Q

How is long time lags between the policy implemented and the outcome of the policy on the economy not too effective for the supply side policy

A 
⚫️e.g
⚫️investing in primary school education
➡️will not improve work productivity
➡️until children enter work force
➡️which could be in 15 years
20
Q

How can supply side policy be expensive

A

⚫️e.g
➡️spending on education
➡️may lead to increase in government spending
➡️funded by either an increase in tax or borrowing
➡️this could add to the national debt

⚫️lead to opportunity cost
➡️spendings in another sector of the economy
➡️e.g. Transport
➡️may have to be cut 
➡️to fund the education spending
21
Q

How can supply side police lead to an increase in inequality

A

⚫️making labour market flexible
➡️often unpleasant on workers

E.g
➡️reducing the power of trade unions
➡️could lead to more exploitation of workers

E.g.
➡️reducing minimum wage
➡️can hit the poorest section of the worker

22
Q

What short term problem will the supply side policy cause

A

⚫️spending on infrastructure
➡️creates initial AD due to government spending
➡️may be inflationary in short term
➡unit AS shifts right
⚫️illustrate this point using ASAD analysis

Economics unit 2 (21 decks)

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