2.6.3 Supply Side policies Flashcards
what are supply side policies?
goverment policies which aim to influence aggregate supply
who manages supply side policies?
goverments
what are the two types of supply side polcies ?
- free market (taking stuff away)
- interventionists policy (adding stuff)
infrastructure (chains of analysis)
interventionsist
- building new roads
- quicker to transport cosst
- reduced fuel cost, decrease in production , increase in short run SRAS
- increase in real GDP
reduction in fuel tax (chains of analysis)
market based policy
- reduction in production costs
- increase in SRAS
- increase in real GDP
what is interventionist policies ?
policies where the government is activley involved in increasing aggregate supply
increase in infrastructure spending (chains of analysis)
more roads ect
(interventionist policy)–> spending on roads/ railways
1. improve geogrphical mobility of labour
2. increase in number of workers availiable to firms, especially in rural areas
3. increased productivity labour, LRAS shifts out.
4. (Demand side effects) increased employment, spending more on local firms, increasing consumption, increase in AD
eg: HS2
infrastructure spending (evaluation points)
- increased infrastructure spending might crowd out private firms
- increased demand for factors of production
- increased price of factors of production
- increased costs for firms, decrease in SRAS, decreasing real GDP
Crowding out: GS pushes demand for factors of production, increasing pri
what are market based supply side policies?
policies where the government aims to icnrease aggregate supply by decresaing intervention in the economy, allowing the market to operate efficently
reducing corporation tax (chains of analysis)
(market based)
1. reduced cost of production , increase in SRAS
3. (long run effect) firms retain more profit, increase in investment, purchase of more productive machines and technologies , increase in productivity, increasing LRAS
4. (demand side effect) increase in investment, increased AD
reducing corporation tax (evaluation points)
- not spending profits on investment- instead rewarding shareholders
opportunitny cost: - government recieve less tax revenue, worsening government budget
- opportunity costs as cannot spend in other sectors (healthcare, education)
reducing minimum wage (chains of analysis)
(market based)
1. wages prices will decraese, decrease in production costs, increase in SRAS
reducing minimum wage (evaluation points)
- (those on minimum wage 1.9 million workers ) reduction in disposable income, reduction in spendning, decarese in consumption, inwards AD, decreasing economic growth
- (long run) wokers emigrate abroad to find higher wages, quantity of labour in the UK will decrease, inwards shift in LRAS (decraese in factor of production), decreasing economic growth
what is deregulation?
when regulations are removed from markets to lower barriers to entry
deregulation (chains of analaysis )
(market based)
* removing regulations, costs to eneter the industy/ production costs decrease, SRAS shifts out, increase in real GDP
what is privatisation?
when the government transfers ownership of a public sector firm to the private sector
normally followed by degregulation in the industry
privatsation (chains of analysis)
- pressured to maximise profit by private investors, increased incentive to become more efficient and decrease costs, SRAS shifts to the right
increase in education spending (chains of analysis)
subsidising
(interventionist)
* (long run) decrease in price of university degrees, more students taking uinevrsitiy degrees, more skills and more qualifies workers, increase in firms productivity, sifting LRAS out to the right
UK need more productivivty
increased education spendning (evaluation points)
subsisising university education
- (short run) when in uni students spend time studying instead of working, decrease in the supply of labour, higher wage costs for firms, icnrease in cost sof production, SRAS shifts to the left
- (long run) not all degrees will contribute to productivity for firms eg: theoretical physicis. Limiting long run growth
reducing income tax
(market based)
* (demand side effect) increase in disposable income, increase in consumption, AD shifts to the right. More spending on firms, more profit, more investment eg: hiring more workers- positive multiplier effect
* increased incentive to work, increase in labour supply, wages decrease, decrease in cost of production, SRAS shift to the right
*
reducing income tax (evaluation)
- workers have to work fewer hours in order to earn the same amount of money, decrease in work hours, decrease in labour supply, increase in cost of production, SRAS shift to the left
reforming benefits (chains of analysis)
(market based)
* unemployed workers have less to live on, increased incentive to work, increase in labour supply, decrease in wages, cost of production decreases, SRAS shifts to the right
reforming benefits (evaluation points)
- (demand side) less money transferred to unemployed workers, those who were on the benefits will decrease their consumption, AD shifts to the left, economic growth, icnome inequality (those in poorer households are disadvanatged)
reform benefits instead of reducing
healthcare spending (chains of analysis)
(interventionist)
* more doctors and more nurses to reduce illness, more healthy population, more healthy workforce for fims, less sick days quantity of hours of labour they will be able to provide increases, inrease in quanitity of factor of production, LRAS shifts to the right
* healthier workforce, increase in productivity, shifting LRAS to the right
£77 bn annual loss in producitivty by UK
healthcare spedning (evaluaution)
quality of healthcare spending
* inefficent allocation of spening on things like bureaucracy, no effect on producitivity, limiting the long run effect on economic growth
define producitivity
the output per (worker, machine) unit of inputs
define supply side policies
government policies which aim to increase the quaility and or producitivty of the factors of production, thereby increasing aggregate supply
What are the 11 supply side policies ?
Essay plan for increase in employment and productivity
(E)fficency, (P)roductivity, (I)ncentives, (C)ompetition
