Supply Side Policies

Question 1

Supply side policies

Answer 1

Policies used to boost AS

Question 2

2 TYPES

Answer 2

Interventionist-government intervene to increase AS

Market based-government remove themselves from the market to increase AS

Question 3

3 interventionist strategies

Answer 3

Education
Infrastructure
Healthcare

Question 4

How education increases AS with eval

Answer 4

Cheaper/accessible, human capital improves, productivity improves, LRAS increases

Eval:benefits seen in long run (TIME LAG), in short run, supply of labour reduces as more people in education increasing wages and costs, decreasing SRAS.

Also no guarantee degrees will increase productivity, may be useless degrees

Question 5

Infrastructure to increase AS with eval

Answer 5

Increased geographical mobility of labour, more available workers, increased productivity, increased LRAS

Eval:resource crowding out, demand for borrowed money, land, labour and capital increases so price goes up. Makes it more expensive for private firms, so SRAS decreases. E.g if government borrow a lot, or push up wages

Time lags, initial cost too

Question 6

Healthcare to increase AS with eval

Answer 6

Improved health, less absenteeism/sick days, increasing labour productivity, LRAS increase

Eval:cost, a lot of money goes to bureaucracy rather than actual medicine etc so won’t necessarily increase AS

Question 7

3 types of market based policies

Answer 7

Tax reforms (reducing income/corp tax)
Labour market reforms (reducing benefits, minimum wage and trade union power)
Competition policy (deregulation, privatisation)

Question 8

Tax reforms to increase AS (corp and income)

Answer 8

Reducing corp tax, costs fall, SRAS increases. Also LRAS increases as more money to invest.

Eval:less tax revenue, less to spend on other sectors.

Reducing income tax, increases incentive to work, supply of labour increases, wages fall, costs fall, SRAS right

Eval:people need to work less to earn same amount, so supply of labour may fall, wages/costs increase, SRAS left

Question 9

Labour market reforms on AS and eval

Answer 9

Reducing benefits-increased incentive to work, SOL increases, wage/costs fall, SRAS increases

However-consumption/AD falls, downward multiplier effect. Income inequality worsens as poor have high MPC

Reducing min wage-decreased costs for producers, SRAS right. Reduced real wage unemployment too.

Eval:consumption/AD falls. Workers may just claim benefits, reduce supply of labour and SRAS. Increased cost to government too for benefits
Workers may emigrate, LRAS left

Reducing trade union power-less time lost to strikes, reduced real wage employment

Question 10

Competition policy on AS with eval

Answer 10

Deregulation-reducing regulations/barriers to allow more competition. Decreased costs, SRAS right. E.g airline deregulation act enabled more airlines to fly, and with shorter routes.

Privatisation-managers accountable to profit maximising shareholders, driving efficiency to lower costs, SRAS right. When things are privatised, deregulations often follow, so SRAS shifts further right