Supply Side Policies

Question 1

What are the Supply-side policies?

Answer 1

These are policies aimed at increasing aggregate
supply.
• Improved education and training
• Lowering direct taxes
• Deregulation
• Privatisation
• Labour Market Reforms
• Subsidies

Question 2

Effects of supply-side policies?

Answer 2

Supply-side policies have the potential to benefit all the government’s macroeconomic aims.

Increasing AS allows the economy to grow without experiencing too much inflation.

Question 3

What is Gross Domestic Product (GDP)?

Answer 3

• Total output produced in a country.

Question 4

How to measure GDP?

Answer 4

• How to measure?
• Output
• Income
• Expenditure

• All three of these should give the same figure

Question 5

How to calculate GDP using output?

Answer 5

• Output: add up all the output produced by all the industries.

Question 6

How to calculate GDP using income?

Answer 6

• Income: add up all the incomes which have been earned in producing the country’s output.

Question 7

How to calculate GDP using expenditure?

Answer 7

• Expenditure: add up all the spending on the country’s finished output.
(must remember to add exports and take away imports)

Question 8

Nominal vs Real GDP

Answer 8

• Nominal GDP is calculated at current prices.
• Real GDP is calculated at a constant price and so it is adjusted for inflation.
• Real GDP per capita: This importantly shows us how many goods and services are available to people in the country.

Question 9

What is a recession?

Answer 9

When real GDP declines over a period of six months or more.

Recessions can be caused by a decrease in aggregate demand or supply.

The lower output will likely lead to a rise in unemployment, lower living standards, lower tax revenue, and less investment.

Question 10

Causes of economic growth in the short run

Answer 10

• Increase in aggregate demand can cause growth if there are unused resources available.
Refers to: actual economic growth

Question 11

Causes of economic growth in the long run

Answer 11

• For growth to continue the country needs an increase in the quality or quantity of resources

Question 12

What can economic growth result in?

Answer 12

• Growth can result in better living standards, increased tax revenue, increased employment.

Question 13

A good note about economic growth

Answer 13

A fall in the economic growth rate is not the same as a fall in output!