3.7 Supply Side policies Flashcards
Supply side policy definitions
Policy that increases the productive capacity of the economy, enabling the economy to supply more goods and services
Examples of supply side policies (9)
Education and training
reducing direct taxes on workers and firms
Decrease on corporation tax
Decrease in benefits
Infrastructure and R&D
Subsidies for R&D technological progress
Reducing trade union power
Govs breaking up monopolies
Reducing government regulations
Evaluating costs of supply side policies
Time lags - they can take a long time to take affect
Cost - Supply side policies can be very costly to implement
Resistance to policies - The policy may face resistance from some groups in the economy for example trade union.
Equity issues - Supply side policies can have a negative effect on distribution of income. In particular for a cut in benefits.
Unintended effects - Some policies may have unintended effects for example cuts in income tax may lead to a decrease in working hours.
Evaluating benefits of supply side policies
target specific markets - They can target particular markets or parts of the economy in order to improve efficiency.
Combats inflation - There is an increase in the productive capacity of the economy so demand pull inflation is reduced
Increases employment
Increases economic growth
Improve the balance of payments as they increase the competitiveness leading to an increase in price competitiveness leading to an increase in exports.
How is education and training a supply side policy
Education and training -> increase in the quality of labour -> to an increase in the productive capacity -> an increase in output and long run economic growth.
How is direct taxes a supply side policy
reducing direct taxes on workers and firms -> increase incentives to work longer hours -> to an increase in the quantity of labour-> an increase in productive capacity -> an increase in output and LR economic growth
How is corporation taxes a supply side policy
Decrease on corporation tax -> increase in the profits firms retain -> to an increase in the quality and quantity of capital -> an increase in the productive capacity of the economy -> an increase in output and long run economic growth.
How is decreasing benefits a supply side policy
Decrease in benefits -> decrease in number of unemployed workers as they are better off working than on benefits -> increase in the quantity of labour -> an increase in the productive capacity of the economy -> an increase in output and LR economic growth.
How is infrastructure and R&D a supply side policy
Infrastructure and R&D -> better roads airports, rail links -> to an increase in the geographical mobility of the economy -> an increase in the quantity of labour -> an increase in output and long run economic growth.
How is subsidies for R&D and technological progress a supply side policy
Subsidies for R&D technological progress -> increase in the quality and quantity of capital -> to an increase in the productive capacity -> an increase in output and long run economic growth
How is reducing trade union power a supply side policy
Reducing trade union power -> decreased strikes -> to an increase in the productivity and efficiency -> an increase in output and long run economic growth.
How is the government breaking up monopolies a supply side policy
Govs breaking up monopolies -> increase in efficiency -> to an increase in the productive capacity -> an increase in output and long run economic growth.
How is reducing government policies a supply side policy
Reducing government regulations -> decrease in barriers to entry -> to an increase in the number of firms entering the market -> an increase in competitiveness and market efficiency -> increase in output and LR economic growth
