effects of the supply-side policies (3)

Question 1

macroeconomic effects of supply-side policies introduced in a particular country

Answer 1

• improvement in human capital = potential eco. growth -> more skills/training -> improved quality of workforce + incr employability -> incr LRAS
• infrastructure development -> potential eco. growth -> reduced geographical immobility and easier to transport -> incr labour productivity and incr international competitiveness -> incr LRAS

Question 2

evaluate the macro effects of supply-side policies introduced in a particular country

Answer 2

• incr gov. borrowing -> worsened budget deficit + risk of crowding out effect
• large scale projects often suffer from delays _ cost overruns
• significant time lag; won’t see effects in the SR High government borrowing & inefficiency risks

Question 3

microeconomic effects of supply-side policies introduced in a particular country

Answer 3

• tax cuts + deregulation -> corporation tax = 19% (2017) -> more retained profits -> incentive to reinvest in capital -> deregulation -> reduces business costs + entry barriers -> incr competitive -> incentive to innovate -> incr dynamic efficiency -> better quality -> incentive to lower prices -> incr consumer surpplus
  Counterargument:

Question 4

evaluate the microeconomic effects of supply-side policies introduced in a particular country

Answer 4

• lower taxes -> less tax revenue -> reduces funding for public services -> could worsen income inequality if tax cuts mainly benefit large firms + high income earners