ESSAY: evaluate with the aid of a diagram whether supply side reforms will always improve macroeconomic performance

Question 1

Definitions of macroeconomic performance and supply side polices?

Answer 1

Macroeconomic performance- achievement of objectives

Supply side policies= policies which expand the long run aggregate supply of an economy

Question 2

Why it might improve objectives?

Answer 2

-increases long run aggregate supply whilst decreasing inflationary pressure
-COMPETITIVENESS, incentives, flexibility, efficiency
-new technology or production techniques mean we can produce goods at a lower cost, meaning prices can be decreased and making us more competitive
- more employment due to increased geographical and occupational mobility, more potential for growth etc
DIAGRAM= outwards shift of LRAS

Question 3

Why it might not be useful for objectives?

Answer 3

• It needs to be matched by a similar size increase in AD to allow GDP to grow as well as stop the introduction of deflation
• may be best used in combination with other polices ie monetary to reduced interest rates and increase AD, or fiscal policy to improve infrastructure and size of (G)
• accelerator theory may be helpful so that other measures to increase GDP alongside expansion of LRAS from SSP means GDP will match this if businesses expand more

Question 4

What it depends on ?

Answer 4

• which objectives are being favoured
• whether the LRAS will be matched by GDP/ AD growth
• effectiveness of supply side policies
• implementation of other policies alongside them