introduction to supply side policies Flashcards
what do supply side policies aim to shift ?
Supply-side policies aim to shift the long-run aggregate supply (LRAS) outwards, increasing the productive potential of the economy
what are the 2 categories of supply side policies
interventionist policies - require government intervention in order to increase the full employment level of output
free market policies - aim to remove obstructions in the free market that are holding back improvements to the long run potential
Market based supply side policies can create conditions in which firms thrive and are incentivised to generate supply-side improvements
definition of supply side policy
Government policies aimed at increasing the production capacity of the economy
Achieved by by focusing on factors that affect the supply side, such as labor, capital, technology, and entrepreneurship
definition of supply side improvements
Specific actions made by firms within the supply side of the economy to enhance its performance and efficiency
what is the objective of supply side policies ? give some examples
influence the macroeconomic environment and structural conditions of the economy to promote long-term growth and competitiveness
e.g.
Tax cuts, deregulation, investment in education and training, subsidies for research and development, and infrastructure development
what is the objectives of supply side improvements and give examples
Enhance efficiency, quality, and competitiveness within individual firms or sectors
e.g
Firms adopt new production techniques, invest in advanced machinery, implement quality control measures, streamline supply chains, enhance worker skills through training programs etc.
what are the goals of supply side policies ?
long term growth
improving competition
increasing labour market flexibility
increases international competitiveness
increasings incentives
what are the effects of supply side policies on macroeconomic objectives - economic growth
The potential national output increases, leading to higher real gross domestic product (rGDP)
what are the effects of supply side policies on macroeconomic objectives - unemployment
Supply-side policies reduce labour costs and create labour market flexibility through:
Decreasing trade union power so wages can be decreased
Decreasing or abolishing minimum wages to lower costs of production
Restructuring the unemployment benefits system to incentivise the unemployed to seek work
what are the effects of supply side policies on macroeconomic objectives - inflation
supply-side policies reduce average price levels
By deregulating the market and reducing taxes, it reduces businesses’ costs of production there will be less cost-push inflation
Demand-pull inflation could also be reduced as potential capacity of economy increases (PPC curve shifts outwards)
what are the effects of supply side policies on macroeconomic objectives - balance of payments
Supply side policies such as Increased spending on innovation and direct support to firms (subsidies) promotes international competitiveness
This can increase the value of net exports
An increase in export demand from abroad causes the balance of payments on the current account to improve
how to supply side policies reduce natural rate of unemployment
enhances labour market flexibility
Investment in human capital reduces structural unemployment
Encouraging entrepreneurship and innovation creates new jobs
Lowering barriers to employment reduces frictional unemployment
Promoting investment and economic growth can reduce structural and frictional unemployment
