5.4 Supply-side policy Flashcards
What is supply-side policy?
Policies designed to improve the productive capacity of the economy by shifting the LRAS curve rightward.
How does supply-side policy affect long-run aggregate supply (LRAS)?
It increases LRAS by improving the quantity and/or quality of FOP
Why is productivity important for economic growth?
Higher productivity means more output with the same inputs, leading to higher GDP and living standards.
What is the relationship between supply-side policy and inflation?
Supply-side policies help reduce cost-push inflation by improving efficiency and lowering production costs.
How do supply-side policies reduce unemployment?
By improving skills, education, and labor market flexibility, making workers more employable.
What are the main tools of supply-side policy?
Deregulation, Privatisation Education & training, tax incentives, labor market reforms, technology
How does education and training improve the economy?
It increases human capital, improving worker productivity and reducing structural unemployment.
What does deregulation and privatisation promote?
Competition
Why do governments provide tax incentives as a supply-side policy?
To encourage investment, entrepreneurship, and work effort.
How do labor market reforms contribute to supply-side improvements?
They reduce barriers to employment, increase flexibility, and encourage firms to hire more workers.
How does supporting technological improvement benefit the economy?
It leads to innovation and increased efficiency, reducing production costs and boosting output.
What is productivity?
The output produced per unit of factor input
What is production?
The total output produced by that entire firm
