3.5 Demand management (Demand-side policies)-- Monetary policy Flashcards
What are supply-side policies?
policies are aimed at the economy’s production side. They are intended to improve the productive capacity, thus driving long term growth (LRAS shift).
Where is the focus on “supply-side” policies?
–> Focus is on shifting LRAS
AD can shift as a result as well
What are the two SSP categories?
1) Market Based Policies
2) Interventionist Policies
What are “market based policies”?
“emphasises the importance of well-functioning competitive markets in achieving growth in potential output, are usually favoured by new classical economists”
What are “interventionist policies”?
“Government takes action to improve/ increase factors of production - the (usually) associated increase in G spending has positive effect on AD in the short run, and the AS should increase in the long run”
–> usually favoured by Keynesian economists
What are the 3 Market-Based Supply Side policies?
- Policies to encourage greater competition
- deregulation
- privatization
- anti-monopoly regulation - Labour market reforms
(To reduce labour costs and unemployment by)
- Reducing trade union power
- Lowering minimum wages
- Reducing unemployment benefits
- Changing employment protection legislation (hiring/ firing) - Incentive-related policies
(reduce private and corporate income taxes to stimulate incentive to work and promote entrepreneurship)
- Higher disposable income = incentive to work more
- lower corporate taxes = higher profits –> more funds for investment in new businesses/ projects
What are the 4 Interventionist policies?
- Investment in human capital (increase in productivity)
- Education
- Training - Investment in technology (helps increase productivity)
- Promote research and development - Investment in infrastructure
- Transport, roads, bridges
- STRONG SR impact on AD, supports LR expansion - Industrial policies
- Support growth of a country’s industrial sector
(typically targets infant industries or growth industries)
