9.3 supply side policies

Question 1

What is supply side policy?

Answer 1

Policies that seek to improve the long run productive potential of the economy

Question 2

What will a successful supply side policy do to a countries PPF/PPC?

Answer 2

Shift it outwards

Question 3

What are the 9 supply side policy options?

Answer 3

Deregulation
Privatisation
Cutting Income Tax
Cutting Corporation Tax
Modification of Welfare Payments
Reformation of Trade Unions
Training and Education
Investment Grants
Regional/industrial Policy

Question 4

What is deregulation?

Answer 4

Opening markets to freer competition and removing barriers to entry should help to drive productivity gains and boost supply

Question 5

What is privatisation?

Answer 5

Minimisation of state control which can often be inefficient
This has been pursued by a number of (mainly Conservative) governments to privatise key areas of the economy in order to drive efficiency

Question 6

What is the impact of cutting income tax?

Answer 6

This should create incentives to work and expand the labour force
In addition, it may influence the economically inactive to enter labour force and boost output

Question 7

What is the impact of Cutting Corporation Tax?

Answer 7

Increases profit motive of firms which can be re-invested in capital

Question 8

What is the impact of the Modification of Welfare Payments?

Answer 8

Widen gap between benefits and wages to boost work incentives

Question 9

What is the impact of Reformation of Trade Unions?

Answer 9

A reduction in trade union power and influence may give rise to lower wage rises (feeding through to lower inflation) and more labour market flexibility

Question 10

What is the impact of training and education?

Answer 10

Improves productivity, mobility and flexibility of the workforce

Question 11

What is the impact of Investment Grants?

Answer 11

Offers incentives to invest in capital

Question 12

What is the impact of Regional/industrial Policy?

Answer 12

Provides incentives for firms to set up in depressed regions

Question 13

Can supply-side improvements can occur independently of the government?

Answer 13

Yes, If businesses are feeling confident about the future state of the economy, they may choose to expand their production of goods and services or invest in new and more efficient capital processes

Question 14

What factors depend on if supply side policies are effective or not? (4)

Answer 14

Time Lags
Cost
Policies of competing nations
Likelihood of government failure