Supply-Side Policies

Question 1

What are supply side policies?

Answer 1

Policies designed to increase the long run aggregate supply in the economy

Question 1

Goals of supply side policies (5)

Answer 1

Increasing productive capacity, increase competition/efficiency, reduce labour costs/unemployment, reduce inflation, increase innovation

Question 2

Types of supply side policies

Answer 2

Market based (firms/businesses) and interventionist based (govt)

Question 3

Reducing consumer income taxes policy

Answer 3

Higher income tax is a disincentive to work

Question 4

Issues with reducing consumer income taxes

Answer 4

• Workers may work less due to disposable income increasing per hour
• Only benefit higher incomes, creating inequality

Question 5

Market based supply side policies (8)

Answer 5

• Reducing income taxes
• Reducing company taxes
• Labour market reforms (reducing union power and reducing minimum wage)
• Labour market reforms
• Deregulation
• Privatisation
• Encouragement of competition
• Trade liberalisation