Supply Side policies

Question 1

Supply-side policies

Answer 1

aim to improve the long run productive potential of the economy

Question 2

Market-based policies

Answer 2

limit the intervention of the government and allow the free market to eliminate imbalances

Question 3

Interventionist policies

Answer 3

rely on the government intervening in the market

Question 4

Factors of Market Based Policies

Answer 4

Increase Incentives - Reducing income and corporation tax to encourage spending and investment, reducing benefits to increase the opportunity cost of being out of work

Promote Competition - Privatising public sector firms compete in a competitive market

Reforming Labour market - Reduce minimum wage allows free market to allocate wages and reduce trade union power so employing is less restrictive

Question 5

Factors of Interventionist Policies

Answer 5

Promote competition: stricter government competition policy could reduce monopoly power

Reform Labour market: Government can improve mobility of labour by subsidising relocation of workers

Improve Education: Government could subsidies training and increase spending on education

Question 6

Effects of Supply side policies

Answer 6

Helps with structural unemployment because labour market can be improved with education and training

Significant Time lags and not all policies are successful

Market based supply side policies like reducing tax could lead to unequal distribution of wealth

Negative impacts on the government budget due to higher expenditure and lower tax

Policies can affect AD before AS so they have inflationary effects