Supply Side Policies Flashcards
Supply side view
Focusing on the demand side of the economy will simply result in inflation especially if there is no spare capacity
Macro objectives achieved via supply side policies (shifting LRAS right) (4)
Higher incomes: ⬆️ living standards
Improved BOP: ⬆️ Exports
Low and stable inflation
Sustainable EG
Supply side policies will (2)
• Increase quantity and quality of FOPs
• Increases productive efficiency (reducing COPs)
Aim of market led policies
To increase competitiveness and free market efficiency
Interventionist aims
Involve government policies designed to overcome market failures
Market led policies (5)
• Encourage immigration
• Reducing benefits
• Privatisation
• Deregulation
• Reduce power of the trade unions
Interventionist supply side policies (4)
• ⬆️ education and training
• ⬆️ affordable homes
• ⬆️ transport and infrastructure
• ⬆️ Healthcare
Supply side policies definition
Policies designed to increase the capacity of the economy
How fiscal and supply side police’s are different
• Macro: fiscal (changes in tax)
• Micro: supply side (deregulation)
Examples of supply side policies (3)
• Industrial policy measures
• Labour market measures
• Financial and capital market measures
Examples of industrial measures (4)
Privatisation
Marketisation
Deregulation (banking system)
Internal markets (NHS and education)
Labour market measures (5)
• decrease income tax
• decrease benefits relative to workers wages
• change employment law (decrease power of trade unions
• flexible pensions arrangements: private pensions
• Repealing legislation limits employers ability/freedom to employ: gig economy
Financial and capital market measures (4)
• Deregulation of financial markets
• Encourage saving
• Promoting entrepreneurs
• decrease public spending and borrowing
Objectives of supply side policies (8)
• Improve incentives to work and improve skills
• Increase labour and capital productivity
• Increase investment and R+D
• Promote competition and stimulation faster innovation and invention
• Platform for non-inflationary growth
• Encourages entrepreneurs and new business
• Improve trend growth of real GDP
Why the UK has low productivity (6)
• Low rate of capital investment
• Banking crisis affecting lending to businesses
• Slow rates of innovation
• Skill shortages in key industries
• Low levels of market competition
• Low AD and high spare capacity
Advantages of high productivity (6)
• Lower unit costs
• Increase competitiveness: increases BoP
• Higher profits: higher reinvestment
• Higher wages
• Higher economic growth
• Higher allocative efficiency
