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 tac
-Increase in minimum wage
-Increase in R&D
-Tariffs
-Education

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

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

Question 6

Find 3 current examples of UK SSPs

Answer 6

Google

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)