2.6.3 - Supply - Side Policies

Question 1

What Do Supply Side Policies Aim To Shift?

Answer 1

Long-run aggregate supply (LRAS).

Question 2

What Are The 2 Categories Of Supply Side Policies?

Answer 2

~ Interventionist.
~ Market-based.

Question 3

What Are Interventionist Policies?
(2 Points)

Answer 3

~ They require government intervention in order to increase the full employment level of output.
~ They also correct market failure.

Question 4

What Are Market-Based Policies?

Answer 4

They aim to remove obstructions in the free market that are holding back improvements to the long-run potential of the economy.

Question 5

What Are The 3 Aims Of The Market-Based Approach?

Answer 5

~ Increase incentives.
~ Promote competition.
~ Reform the labour market.

Question 6

For The Market-Based Approach, What Does It Mean By Increasing Incentives?
(2 Points)

Answer 6

~ Reducing income / corporation tax rates.
~ Restructuring the unemployment benefits system to incentivise the unemployed to seek work.

Question 7

For The Market-Based Approach, What Does It Mean By Promote Competition?
(2 Points)

Answer 7

~ Privatisation and deregulation.
~ Trade liberalisation.

Question 8

What Is Privatisation?

Answer 8

Process of transferring ownership and control of a business, service, or asset from the government (public sector) to private individuals or companies (private sector).

Question 9

What Is The Aim Of Privatisation?
(3 Points)

Answer 9

~ Increase efficiency.
~ Reduce public sector costs.
~ Promote competition.

Question 10

What Is Deregulation?

Answer 10

Process of reducing or eliminating government rules and regulations in an industry.

Question 11

What Is The Aim Of Deregulation?
(3 Points)

Answer 11

~ Promote competition.
~ Promote efficiency.
~ Promote innovation.

Question 12

What Are The Potential Risks Of Deregulation?
(2 Points)

Answer 12

~ Market failure.
~ Reduced consumer protections.

Question 13

What Is Trade Liberalisation?

Answer 13

Process of removing the barriers to international trade such as tariffs.

Question 14

For The Market-Based Approach, What Does It Mean By Promote Competition?
(2 Points)

Answer 14

~ Decreasing trade union power so wages can be decreased.
~ Decreasing the minimum wages to lower the costs of production.

Question 15

What Are The 4 Aims Of The Interventionist Approach?

Answer 15

~ Promote competition.
~ Reform the labour market.
~ Improve the skills and quality of the labour force.
~ Improve infrastructure.

Question 16

For The Interventionist Approach, What Does It Mean By Promote Competition?
(2 Points)

Answer 16

~ Increased government spending on infrastructure.
~ Direct support to firms, promoting international competitiveness.

Question 17

For The Interventionist Approach, What Does It Mean By Reform The Labour Market?

Answer 17

Increased government spending on improving the occupational mobility of labour.

Question 18

For The Interventionist Approach, What Does It Mean By Improve The Skills & Quality Of The Labour Force?
(2 Points)

Answer 18

~ Increased government spending on education and retraining.
~ Increasing government spending on healthcare so that productivity improves.

Question 19

For The Interventionist Approach, What Does It Mean By Improve Infrastructure?

Answer 19

Increased government spending on infrastructure.

Question 20

How Does A Successful Supply Side Policy Shift LRAS On Classical & Keynesian?

Answer 20

Right.

Question 21

What Are The 5 Strengths Of Supply Side Policies?

Answer 21

~ They increase the rate of growth in an economy.
~ They reduce the 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.

Question 22

What Are The 5 Weaknesses Of Supply Side Policies?

Answer 22

~ The distribution of income worsens as the labour market reforms and wage policies lower workers’ ages.
~ They are expensive to implement.
~ There are significant time lags between expenditure and seeing the benefits.
~ Changes in government often result in changes to the budget and scope of projects.
~ Vested interests can result in less effective outcomes.