Supply-side policies

Question 1

Aims of Supply side policies

Answer 1

increase supply in long-rung and shift the AS/LRAS right

Improve competition and efficiency
Reduce labor costs through increased labor market flexibility
Reduce inflation
Increase firm investment incentives by reducing costs

Question 2

Market-based Supply-side policies

Answer 2

Reduction in household income tax

Reduction in corporate tax

Labor market reforms like reducing minimum wage, reducing unemployment benefits, reducing trade union power

Deregulation -> decreases firm costs

Privatization -> private firms generate more profit than state-owned

Trade liberalization - reduction of quotas to increase appeal of intl trade

Question 3

Limitations of market-based SS policies

Answer 3

Income inqequality -> higher earning folk will accumulate more wealth

Labor market reforms dangerous

Wealth disparity as firm may dedicate more of profit towards dividends than investment

Privatization can lead to monopoly as firms could be in a field with no competition

Deregulation can lead to socio-environmental conditions deteriorating

Question 4

Interventionist SS policies

Answer 4

direct governmental actions in the market

1) Investment in human capital -> training/educating labor force

2) Investment in research and development which leads to improved technology, intellectual property rights, grants etc.

3) Provision and maintenance of infrastructure -> improved efficiency and capability of economic activity -> LRAS increases

Question 5

Limitations of interventionist SS policies

Answer 5

Significant monetary cost, time lag, implementation difficult due to ideology

Question 6

Connecting Supply and Demand side policies

Answer 6

• Supply-side economics usually focuses on creating government projects to encourage the production of goods from a corporation.

In contrast, demand-side economics focuses specifically on creating government jobs, so consumers feel more comfortable spending.

• Supply side economics and demand side economics differ in their focus for economic growth.

In contrast, demand-side economics focuses on the average consumer to help stimulate the economy again.