Supply Side Policies

Question 1

What are the two types of demand side policy?

Answer 1

Fiscal and monetary policy.(interest rates and money supply)

Question 2

What is a supply side policy?

Answer 2

Any type of supply that aims to increase aggregate supply in the economy.

Question 3

2. What is the market based policy about

Answer 3

When gov decreases its intervention in the economy.

Question 4

Increasing infrastructure is an example of what policy and what effects does it have?

Answer 4

Improved infrastructure ->improved mobility -> available workers-> decrease unemployment

Question 5

Evaluation point for increasing spending on infrastructure.

Answer 5

Crowding out occurs when gov spending pushes up demand for resources which increases their price. And it makes it more expensive for the private sector firms to invest and been crowded out.

Question 6

Advantage of increasing gov spending on infrastructure as a supply side policy.

Answer 6

Increases AD
Increases employment
Increases consumption
Increase in LRAS and AD lead to economic growth.

Question 7

Disadvantage of gov spending on infrastructure as a supply side policy.Evaluation point!

Answer 7

Might crowd out private firms. By borrowing money to spend on new infrastructure, this may crowd out private firms. Increases demand for borrowed money and CELL. Increases price of CELL, increases cost for firms. Shifts SRAS and reduces real GDP.