3.7 Supply-side policy

Question 1

Define supply-side policy

Answer 1

Any policy that helps to increase a country’s productive potential

Question 2

How can supply-side policies achieve economic growth/ lower unemployment?

Answer 2

Education and training: better education and training improves workers’ skills and the quality of labour. This increases productivity and economic growth and reduces unemployment/

Question 3

How can supply-side policies achieve price stability/ balance of payments?

Answer 3

Should increase competition leading to greater efficiency and output as well as price stability. Exports are more competitive helping to improve the balance of payments

Question 4

What are the costs of supply-side policies?

Question 5

What are the benefits of supply-side policies?

Answer 5

• Reduced inflation: product and labour markets become more efficient so output rises to combat increase in demand, therefore keeping inflation under control
• Increased employment: more output requires more workers. Increased productivity can lead to higher wages making working more attractive
• Increased economic growth: policies lead to increased output which leads to economic growth, which is likely to result in higher living standards
• Improved balance of payments: policies leading to increased competitiveness will improve the balance of payments as exports are of better quality and lower prices