2.6.3 - Supply-side policies Flashcards
What is a supply side policy?
Policies that seek to improve the long run productive potential of the economy
What graph can you use to show the effects of a supply-side policy?
LRAS graph
PPF Curve
What is a market-based supply-side policy?
This allows the free market to operate with the government reducing its (the government’s) role in the market
What is a interventionist supply-side policy?
This involves government intervention to tackle market failure
Name 2 examples of supply-side policies that will increase incentive
- Cutting income tax
- Cutting corporation tax
- Modification of welfare payments
- investment grants
- Regional policy
What is regional policy?
*increase incentives
This is an incentive for firms to set up in depressed regions.
What is the modification of welfare payments?
*increase incentives
Thus us widening the gap between benefits and wages to boost work incentives
Name 2 supply-side policies that promote competition
- Deregulation
- Privatization
What is deregulation?
Opening markets (so that there isn’t one supplier for gas etc) to freer competition and removing barriers to entry should help to provide productivity gains and boost supply
What is privitization?
This is the minimization of the state (government) control.
this has been pursued by a number of (mainly conservatives) governments to privatize key areas of the economy in order to drive efficiency
What is privitization?
This is the minimization of the state (government) control.
this has been pursued by a number of (mainly conservatives) governments to privatize key areas of the economy in order to drive efficiency
Name one supply-side policy that can reform the labor market?
- Reformation of the trade unions
What is the reformation of the trade union?
This is a reduction of the trade union power and influence.
This may give rise to lower wage rises, feeding through to less inflation (remember wage-price inflation) and more labor market flexibility.
What is the reformation of the trade union?
This is a reduction of the trade union power and influence.
This may give rise to lower wage rises, feeding through to less inflation (remember wage-price inflation) and more labor market flexibility.
What are the key macroeconomic objectives of the government?
- Inflation under 2%
- GDP growth
- Uneployment decrease + Employment decrease
- Higher living standards
- Stable balance of payments on the current account
- An equitable distribution of income and wealth
Name 2 key objectives of supply-side policies
- Improve incentives to look for work and invest in people’s skills
- Increase labour and capital productivity
- Improve occupational and geographical labour to help reduce unemployment
- Increase investment and research and development spending
- Promote more compeitition and stimulate a faster pace of invention and innovation to miporve comptetitiveness
- Provide a platofrm for sustained no-inflationary growth
- Encourage the start-up and expansion of new businesses/enterprises especially those with export potential
- Improve the trend rate of growth of real GDP to help support improved living standards and regional economic balance
- Improve a country’s competitiveness and trade performance
- Meet challenges of climate change/increase reslience to external shocks
What’s the definition of unemployment?
The number of people looking for work but who cannot find a job in a point of time.
What’s the definition of inflation?
The rate of change in average price level over time.
Draw or describe an AD curve
- Y axis labelled “Price Level”
- X axis labelled “Real National Output”#
- AD curve going down from Y axis
- Equilibrium point on AD curve where “P” and “Y” meet each other
- “P” where the current price is
- “Y” where the current output is
Name 2 examples of market-based supply-side policies
- Cutting government spending (including welfare) and borrowing
- Lower business taxes to stimlulate capital investment spending
- Lower income tax rates to improve work incentives
- Improving the flexibility of the labour market including reforming employment laws and ecouraging more part-time work
- Competition policies, i.e deregulation and tought anti-cartel laws
- Privatization of state assets - i.e transferred to private sector
- Opening up an economy to overseas trade and investment
- Opening up an economy to inward skilled labour migration.
Name 2 examples of interventionist supply-side policies
- State investment in public services and critical infrastructure
- A commitment to a minimum wage and/or living wage to improve work incentives and productivity in the labour market
- Progressive taxes on the wealthy to fund public and merit goods
- An active regional policy to inject extra demand into under-performing areas and regions of persistently high unemployment and low per capita income.
- Selective import controls to allow domestic industries to exapnd
- Management of the exchange rate to improve competitiveness
- Nationalisation of tougher regulation of key industries
