Lesson 27 - Supply Side Policies Flashcards
What is the purpose of supply side policy?
Focus on improving structural, long term performance of an economy
Can affect SRAS + LRAS
What are the goals of market led policy?
Reduce size + role of state
Improve market function + give private sector freedom
Give 3 examples of market led policies
Cut govt spending + borrowing
Lower business tax
Lower income tax
Reduce red tape to cut business costs
Improve labour market flexibility
Privatisation
Increase overseas trade, investment, labour migration etc
What is the purpose of government led policy?
Overcome market failure
Give 3 examples of govt led policies
State investment in public services + infrastructure
Commitment to minimum/living wage
Increase highest rates of prog tax
Active regional policy (fix imbalance)
Selective import control (protects domestic industry)
ER management (Competitiveness)
What is the main objective of supply side policy?
Increase national productivity
What is production?
Value of output of G+S
Measured by GDP or index of production in specific industry
What is productivity?
Measure of efficiency of factors of production
What are the 2 ways in which productivity is measured?
Output per person employed
Output per person hour
What are the 6 causes of the Uk productivity gap?
Low rate of new capital investment
Banking crisis affects lending to firms
Slowing innovation rates
Persistent skill shortage (Key industry)
Relatively low market competition
Low AD + high spare capacity
What are the advantages of higher productivity?
Lower unit costs
Increased competitiveness
Higher profit
Higher wages
Growth
What are the drawbacks of supply side policies?
Time lags
AD must also rise
Income + wealth inequality
State intervention ‘picks winners’
Long term sustainability (externalities)
What are the 2 types of supply side policy?
Market based
Govt based (Interventionist)
