5) Introducing Supply Side Policies - MMT Flashcards
what are the governments 5 main macroeconomic objectives?
economic growth, stable prices, low employment, stable balance of payments and fairer distribution of income
what is supply side policy used for?
governments attempts to increase productivity and shift aggregate supply (AS) to the right
what do supply side policies mainly target?
LRAS but there may be short term impacts as well
what two types of supply side policy are there?
1) Free Market Policies
2) Interventionist policies
what do free market supply side policies involve?
policies to increase competitiveness and competition
what are examples of free market supply side policies?
privatisation, deregulation, lower income tax rates, and reduced power of trade unions
what do interventionist supply side policies involve?
involve government intervention to overcome market failure.
what are examples of interventionist supply side policies?
higher government spending on transport and communication, on education and training etc
free market: what is privatisation?
selling state owned assets to the private sector
free market: what is deregulation?
reducing barriers to entry to encourage new firms to enter the market
free market: what is reform of tax and benefit system?
reducing the tax burden on the companies. Making state benefits more efficient
free market: what is competition policy？
ensuring that competition began between businesses is fair; minimising barriers to entry in different markets
free market: what is improving labour market flexibility?
making it easier for businesses to hire (and fire) workers when they need to
what are the 5 free market policies?
1) Privatisation
2) Deregulation
3) Reform of tax and benefit system
4) competition policy
5) improve labour market flexibility
interventionist: what are subsidies?
payments made by the government to businesses, as an incentive to do something
interventionist: what is investment in infrastructure?
improving the country’s long term and essential manmade environment
interventionist: what is investment in education and training?
improving the quantity but especially quality of workers available for firms to hire
interventionist: what is investment in R&D?
helping businesses to innovate i.e develop new products, new technology
interventionist: what is immigration control?
influencing the number of foreign nationals competing for jobs in the UK
would there be an intention to shift AS to the left?
unlike AD, there is rarely if ever any intention from the government to shift AS left. Supply- side policies are almost always expansionary
what does higher AS mean?
higher AS, especially LRAS, should (in theory) mean higher growth, more employment and lower price level, all desirable objectives
what will supply side policies do for the economy?
will improve the quantity and quality of all the 4 factors of production (resources) available in the economy, but often does not have their desired effect
what are SSPs one overriding objective?
to shift LRAS to the right
