Supply side policies

Question 1

What are supply side policies

Answer 1

They are designed to increase aggregate supply in the economy

Question 2

How can the government achieve an increase in aggregate supply?

Answer 2

Privatisation
Deregulations
Education & Training
Policies to reduce unemployment –> Fiscal
Infrastructure spending

Question 3

Why do governments improve productivity

Answer 3

To increase labour and capital productivity

To increase investment and research and development spending

To stimulate a faster pace of innovation to improve competitiveness

To improve the growth of the real GDP

Question 4

What does improving productivity of production factors mean

Answer 4

It means that resources are allocated more effectively and the productive potential of the economy can be increased

Question 5

How can supply side policies increase labour productivity?

Answer 5

Improving flexibility
Training and education
Total output

Question 6

What measures may the government use to increase economic growth

Answer 6

Lower income taxes to encourage working
Lower business taxes to stimulate investment in research and development
Increase spending on infrastructure
Privatisation
Deregulations

Question 7

Define Privatisation

Answer 7

Privatisation is the sale of government assets to the private sector

Question 8

Why might privatisation occur?

Answer 8

If firms are run by the government, they are in the public sector and are nationalised meaning they can run at a loss as the government funds them and there’s no competitiveness resulting in no incentive to be better

Question 9

How can privatisation help the economy?

Answer 9

Increased competition forces businesses to improve leading to more innovation resulting in better quality goods and services as well as efficiency leading to lower prices for consumers resulting in increased aggregate demand

Increased competition leads to increased output for consumers hence, leading to increased choice and resulting in an increase in the standard of living

Question 10

Define deregulations

Answer 10

Deregulations get rid of certain rules, need for licences and government approval which helps markets be more competitive by allowing business to enter more easily and makes decision making easier resulting in a promotion in economic growth