2.6.3- Supply Side Policies Flashcards
What do supply side policies aim to do?
Improve the long run productive potential of the economy by making it cheaper, quicker and easier to produce goods
What is a free market SSP?
When the government tries to make markets work better by removing government intervention, removing bottlenecks, and providing incentives
What is an interventionist SSP?
The gov believes the market has failed so steps in and provides what is required
How does SSP work by?
- Increasing incentives
- Promote competition
- Reform the labour market
- Improve skills and quality of labour force
How does SSP work by?
- Increasing incentives
- Promote competition
- Reform the labour market
- Improve skills and quality of labour force
How does SSP increase incentives?
Reduces benefits/ taxes so increases the opportunity cost of being out of work and prevents the poverty/ unemployment trap
What is the poverty/ unemployment trap?
Low income workers end up in the same or a worse position after they gain a new job due to the benefits they lose
What is the poverty/ unemployment trap?
Low income workers end up in the same or a worse position after they gain a new job due to the benefits they lose
How does SSP promote competition?
-can privatise companies and deregulate restrictions on businesses
-can prevent monopolies and ensure smaller firms can compete
How does SSP reform the labour market?
-increasing the retirement age means more people are working
-can change contracts and make it easier to change jobs through higher mobility of labour
What is higher mobility of labour?
Having more info about job vacancies, improved flexibility of pensions and improved geographical mobility (more affordable houses)
What is higher mobility of labour?
Having more info about job vacancies, improved flexibility of pensions and improved geographical mobility (more affordable houses)
Why is weakening trade unions not helpful?
Trade unions are already weak in the UK so reducing their power may have little effect
What is bad about reducing benefits?
-Will lower AD if they are unable to get jobs causing a further decrease in employment
-will have a multiplied effect as the poor have a high MPC
How does SSP improve skills and quality of the labour force?
-spending more on education and training creates a more educated workforce who will be more efficient
-could introduce regulation to force businesses to continuously train staff
