Chapter 28- Supply Side Policy

Question 1

Supply Side Policy Measures

Answer 1

Measures designed to increase aggregate supply

Question 2

Improving Education and Training

Answer 2

It is designed to increase the skill of workers which would make them more productive. This would lower costs of production and increase the quality of products produced. This could lead a nation’s firms to selling more and would likely encourage them to expand. It would also make the workers more occupationally mobile which would make them more adaptive to changes in demand.

Could be bad as training for the wrong purpose might be useless.(flower arrangement instead of mathematics)

Question 3

Lowering Direct Taxes and Increasing incentives

Answer 3

increases the reward from working which is amplified when combined with a cut in unemployment benefit. May also result in an increase in labor force as more of the unemployed want to find jobs. Some workers my respond to this by working fewer hours as they can still earn the same amount of income and this wont be effective if there arent enough jobs. If there is also a cut in unemployment benefits, there could be a decrease in aggregate demand as people would have less to spend. Cutting corporation tax would increase investment as firms can keep more of the profit they earn. This may not be the case if they lack confidence in the future.