2.1.2 Supply Side Policy

Question 1

What is supply side policy

Answer 1

Supply side policy are used to help increase aggregate supply in the economy
(Total amount of goods and services produced in a country at a given price level within a given time period)

Question 2

Aims of supply side policy

Answer 2

Improve flexibility in labor market by removing restrictions
Restore incentive to work by lowering taxes on work and enterprise
Increase investment by improving flow of capital in capital markets

Question 3

What can supply side help

Answer 3

Factors of production (productivity and output)

Macroeconomic objectives

Question 4

Improving flexibility (productivity)

Answer 4

Anti trade unions legislation to weaken them so there is less disruption when new working practices and technology introduced and so wage strikes don’t occur

Question 5

Training and education (productivity)

Answer 5

The quality of workforce will improve with more training and education» increase labor productivity» increased aggregate supply
An increase in competition will mean more pressure on firms to be more cost effective and innovative» increased productivity
If businesses purchase new technology to update production facility» increase productivity

Question 6

How do supply side policy aim to in ease PP (productivity)

Answer 6

With more output the national income will rise and so will living standards. If government increases supply there will be less demand pull inflation and more jobs

Question 7

Impact of privatization (MO)

Answer 7

Privatization will break up monopolies and increase competition so businesses have to make more money to survive. Competition should lead to improve quality and reduce prices

However state monopolies may become private and exploit consumers

Question 8

Deregulation as impact on (MO)

Answer 8

Deregulation aims to stop paper work and reduce obtaining unnecessary licenses, remove tribal rules and reduce the amount of people needed to make a decisions
This makes producing output quicker
Lack of regulation can lead to financial crisis

Question 9

Education and training on macroeconomic

Answer 9

Higher human capital because more skills
However very costly and leads to opportunity cost
And not every country can afford it ( or families)

Question 10

Policies o boost regions with high unemployment

Answer 10

SSP can be targeted or used selectively

The government will help create jobs in those regions with high unemployment

Question 11

Infrastructure spending

Answer 11

PPC increase if infrastructure improved
Investment in infrastructure will improve transport and communication which will help private sectors because people will be more geographically mobile

Question 12

Lower business taxes to stimulate investment

Answer 12

The pace of economic growth can be accelerated if businesses invest more.
If firms are confident about the future they will invest more

Taxing profits less means more money can be used for investment (cooperation tax)
Firms can offset the cost of investment against tax
Tax relief may be given to those who invest

Question 13

Lower income taxes to encourage working

Answer 13

High taxes reduce incentive to work

Reduce income tax