Lesson 15 - Supply Side Policies Flashcards
What are supply side policies?
Creating the conditions for growth
Name the types of supply side policies
- corporation tax
- investment in infrastructure
- training/education
- raising/lowering taxes to encourage investment
What does the laffer curve show?
- that one governments make taxes too high, the 3 D’s happen
- firms don’t declare (avoid taxes)
- move elsewhere
- discouraged to invest/hire
What is the interventionist approach to supply side policies?
- the government intervening in the free market
What is the free market approach to supply side policies?
- incentivising workers to work and for firms to hire/invest
What are the causes and consequences of high unemployment?
Causes
- lack of demand for labour
- skills no longer needed
- high benefits
- between jobs
Consequences
- lower living standards
- automatic fiscal implications
- lost output
What are the causes and consequences of inflation?
Causes
- too much demand
- high costs for firms
- too much money supply
- high priced imports
Consequences
- wage squeeze (real wages fall)
- wage price spiral
- inflationary noise
What are the causes and consequences of a global recession?
Causes
- economic shocks (Russia/Ukraine war)
Consequences
- jobs and demand leak abroad
What are the causes and consequences of a high BoP deficit?
Causes
- lack of productivity (less competitive)
- strong pound
- cheaper exports from LIC’s (Chindia)
Consequences
- heavy borrowing to live beyond our means
- jobs leak abroad
What are the supply side solutions for high unemployment and what issues could there be with this?
Supply side solutions
- training and education to boost occupational mobility
- lower benefits to boost productivity
Issues
- lowering benefits is unfair on the poor
- opportunity costs since it takes time and costs money (long term solution)
