supply side policies

Question 1

Market based vs interventionsit policies

Answer 1

Market:
-allow free market to eliminate imbalances
-limit gov intervention
-forces of supply and demand

Interventionist:
-Rely on govenment intervention

Question 2

What are supply side policies

Answer 2

-Aims to improve long-run productive capacity and efficiency of an economy

Question 3

Create incentives

Answer 3

Market:
-Reduce income and coorporation tax to encourage spending or investment
-Reducing benefits to increase opportunity cost of being out of work

Question 4

Promote competition

Answer 4

Market:
-deregulating or privatising the public sector - firms can compete in a competitive market - improve economic efficiency

Int:
-Strict gov competition policy to reduce monopoly power and ensure smaller firms can compete too

Question 5

Reform labour market

Answer 5

Market:
-Reduce NMW - free market forces allocates wages - labour market should clear
-Reduce trade union power - employing workers is less restrictive - labour mobility increased - more efficient LM

Int:
-Gov can incease geographical immobility of labour by subsidising reallocation of workers - impeove availability of job vacancy information

Question 6

Improve skills and quality of labour force

Answer 6

Int:
-Subsidise training - lower cost for firms
-More spending on education - more skilled and efficient workers
-Increased spending on healthcare - improved quality of labour - more productive
-All leading to reduced occupational immobility of labour

Question 7

Improve infrastructure

Answer 7

Int:
-Improve roads/schools

Question 8

Strengths of SSP

Answer 8

-Only policies that can deal with structural unemployment - labour market can be directly improved with education and training

-Enhanced sustainable economic growth - increased productive capacity

-Reduced cost-push inflation - greater efficiency and productivity reduce COP

-Increase tax revenues in LR due to higher economic growth and lower spending on welfare benefits

-Industries becoming more competitive through lower costs and increased productivity reduces trade balance

Question 9

Weaknesses of SSP

Answer 9

-Time lags - infrastructure projects, education improvements, R+D take years to yield results - not all policies will be successul - not a SR solution

-Increased inequality - tax cuts and deregulation can lead to a more unequal distribution of wealth - disproportionally benefit the wealthy

-Gov budgest worsens - high expenditure/ lower taxes - however there is a LR benefit

-Does not affect demand pull inflation

-If there is a lot of spare capacity in an economy there will be no effect - elastic part of keynsian

Question 10

RWE SSP

Answer 10

-Privatisation of Royal Mail in 2016
-Deregulation of UK retail energy market
-Tax free childcare - up to £2,000 a year