2.6.3 Supply-side policies Flashcards
What is the aim of supply side policies?
Supply-side policies aim to shift the long-run aggregate supply (LRAS).
What are the two categories of supply-side policies?
Interventionist and market-based.
Explain interventionist supply-side policies?
Interventionist supply-side policies require government intervention in order to increase the full employment level of output. These are mainly used to correct market failure.
Explain market-based supply-side policies?
Market-based supply-side policies aim to remove obstructions in the free market that are holding back improvements to the long-run potential. E.g. Setting up a regulator to prevent monopolies forming.
What are the five aims of supply-side policies?
/To increase incentives
/To promote competition
/To reform the labour market
/To improve the skills and quality of the labour force
/To improve infrastructure
How are incentives increased in a market based approach?
Reducing income/corporation tax rates. Restructuring the unemployment benefits system to incentivise the unemployed to seek work.
How is competition promoted in a market based approach?
Privatisation & deregulation. Trade liberalisation.
How is competition promoted in a interventionist approach?
Increased government spending on innovation. Direct support to firms (subsidies) promotes international competitiveness.
How is the labour market reformed in a market based approach?
Decreasing trade union power so wages can be decreased. Decreasing minimum wages to lower costs of production.
How is labour market reformed in a interventionist approach?
Increased government spending on improving occupational mobility.
How are the skills and quality of the labour force improved in a interventionist approach?
Increasing government spending on education and retraining. Increasing government spending on healthcare so that productivity improves.
How is infrastructure improved in a interventionist approach?
Increased government spending on infrastructure.
Strengths of supply-side policies?
/They increase the rate of growth of an economy
/They reduce average price levels
/They reduce unemployment
/They often increase the value of net exports
/Improvements in Infrastructure can raise the quality of life for all citizens
Weaknesses of supply-side policies?
/The distribution of income worsens as labour market reforms and wage policies lower worker’s wages
/They are expensive to implement
/There are significant time lags between expenditure & seeing the benefits
/Due to the long-term nature, changes in government often result in changes to budgets & scope of projects
