Supply side policies Flashcards
Supply side policies
The actual attempt to increase productivity and efficiency (could be through government spending or the market)
Aim
To create long term growth through increased productivity and efficiency. Trying to increase LRAS (and PPF). Also trying to make structural changes to economy to work more efficiently and supply more.
Supply side policy notes
-Usually used with DSP (Demand side policies)
-DSP: helpful in the long term
-SSP: Takes time
Supply side improvements
General improvements in productivity of economy by private sector e.g. investment, private improved tech (without government spending)
How do we improve efficiency and productivity?
-Vocational training and government spending on education (increased productivity)
-Increased spending on technological devices (increased efficiency)
-Reduced income tax (workers more incentivised to work)-more productive, less unemployed
Productive capacity
An increase in productivity or efficiency leads to an increase in productive capacity.
How could SSP be used to cause deflation?
Increased technology>Increased efficiency>Increased LRAS> Decreased PL
How could SSP be used for economic growth?
Increased education> Increased productivity> Increased productive capacity> Increased LRAS> Increased RNO> Increased GDP> Increased EG
Can SSP help cyclical unemployment?
Cyclical unemployment is caused by a lack in AD so SSP and increased LRAS wouldn’t help
How can SSP help structural employment?
Government spending on training/upskilling> Increased productivity> Increased LRAS> Decreased structural unemployment.
Chain of reasoning links
-Productivity>LRAS= productive capacity
-LRAS>Structural unemployment= occupational/geographical immobility
-+LRAS>+RNO=Can collectively supply more
-RNO>GDP=RNO is a measure of GDP
-GDP>Standard of living=Real GDP/population, real GDP per capita assuming population is the same
