Supply side policies

Question 1

What is a supply side policy

Answer 1

Policies which aim to increase the productive capacity of the economy and efficiency

Question 2

Give 5 factors which aim to increase supply in the economy

Answer 2

-Decrease in corporate tax
-Increase in minimum wage (increasing incentive to work)
-Increase in investment (increase in capital stock)
-Tariffs
-Education
- Reform welfare

Question 3

Give 5 aims of SSPs

Answer 3

• Increase occupational & geographical mobility of labour
• Promote competition and stimulate innovation
• Economic diversification (more varieties)
• Encourage start ups of new businesses
• Improve incentives to work & invest in peoples skills

Question 4

What do we mean by the UK has a productivity gap

Answer 4

This means that in general, our workers have less productivity and we grow more slowly than our rivals (last 20 yrs)

Question 5

Give 5 reasons why the UK has poor supply side policies & poor long run growth

Answer 5

• Since covid, 2.5m people become economically inactive
• Ageing infrastructure - rise in pollution & risk to floods
• Regional economic imbalances
• Low investment in R&D - shareholder culture
• Productivity gap
• Strict planning laws

Question 6

Give 3 current examples of UK SSPs

Answer 6

• Heathrow expansion & aiming to reduce planning permission restrictions
• HS2 improving occupational and geographical mobility of labour
• Corporation Tax Cuts – The UK reduced corporation tax from 28% in 2010 to 19% by 2017 to encourage investment (but recently increase in national insurance contributions for employers may hinder this)
• Free childcare places to allow for parents to work

Question 7

What do we mean by regional economic imbalances

Answer 7

GDP per head in LDN is higher than everywhere else in the UK (North/south divide)

Question 8

How does the effectiveness of SSP’s affect long run growth - draw the diagram

What have the OBR said about UK potential long run growth (link to the diagram)

Answer 8

If SSP’s aren’t effective, LRAS will not shift all the way to LRAS1 and will only shift to LRAS2 if SSP’s not effective - leading to lower GDP than if they were effective, and a higher price level (P to P1) - meaning it is inflationary growth.

OBR said UK economy is now only capable of reaching 1.7%, represented by LRAS2, rather than 2.75%, represented by LRAS1, the theoretical target for UK long run growth - demonstrating UK’s poor SSP’s in the last decade

Question 9

Even if UK SSP’s are effective, what else may limit LR growth - draw a diagram

Answer 9

Assumes that there are no external events/shocks which limit LR/SR growth

(E.g. - America & tariffs leading to cost push inflation from P to P2 due to increase in costs from SRAS to SRAS1)

Question 10

Give a policy which aids in the shortage of skilled labour workers in the UK economy that also contributes to geographical mobility

Answer 10

T-levels allowing 50% of learning to be done at home which potentially lowers geographical barriers

Question 12

What is rezoning

Answer 12

Updating zoning laws to allow for higher density housing in urban areas

Question 13

Give 5 to reduce economic inactivity in the UK

Answer 13

Health and Disability Support:
Workplace Adjustments and Disability Support (allowing older people to work from home/flexible working hours)

Childcare and Family Support - Affordable Childcare Programs & Elder Care Support:

Reforming Benefits to Support Work Transitions - New unemployment insurance benefit

Addressing Regional Imbalances

Incentives for Older Workers - Tax Incentives for Staying in Work

Question 14

Who are those who are economically inactive

Answer 14

Those of working age, but are not seeking employment