Supply-side Policies Flashcards
What are the aim of supply side policies?
Increasing the productive potential of the economy and shifting the supply curve to the right
What are Market Based Policies?
- Policies designed o remove anything that prevents the free market system operating efficiently
What are Interventionist Policies?
- Designed to correct market failure
- Firms tend to look at the short run therefore the government encourage long term investment
How might policies increase incentives?
- Increase incentives to work
- Reduction I benefits and tax increases raises opportunity cost of being out of work (Reduces poverty trap)
- Reduced National Insurance contributions to encourage employment in firms
- Removal of minimum wage
- Reduced taxes increasing ROI therefore firms more likely to take risks
How might policies increase competition?
- Privatisation
- Competition
What is Privatisation?
Selling nationalised companies to private sectors/deregulation whereby less restrictions are places on companies that enter the market to increase competition
What is Competition and why is it necessary?
- Used to prevent monopolies in the market and make cartels and price fixing agreements illegal
- Seen as necessary for firms to act as efficiently as possible and offer a cheaper or better service
How may policies reform the labour market?
- Increase retirement age for more labour
- More flexibility to increase reactivity to change
- More flexibility with zero hour contracts
- Weakening of unions to prevent higher wages
- Increase info about jobs
- Geographical mobility through cheaper housing
- Cut VAT and relax planing laws
How may policies improve skills and quality of the labour force?
- Increased spending on education and training of the work force
- Regulation by forcing businesses to continue to train staff and keep up with developments
- Increase high skilled migrants
- More efficiency through development and investment into technology
How may policies improve infrastructure?
- Tax incentives / subsidies on investment
- New technology developed and invested in leads to more efficient production process
What are the pros of supply side policies?
- Able to increase output and decrease prices
- Long term policies which lead to long term growth
- Increase in exports can help balance of payments
- 2 approaches allow for all economists to use
What are cons of supply side policies?
- Keynesian LRAS shows they will have no effect when it is elastic, demand side is needed
- Govt has to spend money and reduce taxes which can lead to a budget deficit
- Undesirable impacts on AD where higher unemployment and inflation can take place
- Long time lag and hence less effective
