Supply Side policies Flashcards
Supply side policies definition
Attempt to influence an economy’ potnetial output by increasing the quantity or quality of the factors of production.
Market-based policies (improve suply side of economy but decrease gov. interference)
Lower business taxes, reducing re-tape/bureaucracy, reforming employment laws, policies to boost competition (deregulation and tough anti-monopoly & anti-cartel laws), privatisation of state assets, encouragements of FDI
Interventionist policies (more direct impact on supply side)
State investment in public services and critical infrastructure, commitment to a fair min. wage/living wage to improve work incentives, active regional policy to boost under-performing areas of the country with high unemployment, import controls to allow domestic industries to expand, nationalisation of some key industries
Productivity definitions
Productivity - output per worker or output per worker per hour worked or output per unit of input
Improve quantity and quality of labour
Education and training, decreased union power, reduction in benefits, reduce min. wage, promote mobility, reduce income tax, encourage immigration
Improving quantity and quality of capital
Investment, infrastructure, R&D, keeping economic cycle stable, effective banking system
Promote entrepreneurship
Low barriers (reduce legal and bureaucratic barriers involved in setting up a firm), support (gov. agencies providing advice and loan guarantees), low corporation tax
Stimulate competitive environemnt
Deregulation, privatisation, improve management (improves use of resources and available capital), competition policy (competition and markets authority)
Supply side policies advantages (think about graph and PL)
Reduce inflationary pressures, improves international competitiveness, GDP per capita increase, long-run growth potential increases
Disadvantages of supply side policies
Time lags, expensive policy for gov. affecting fiscal position, needs to be in coordination with fiscal and monetary policy, risk of inequality (reduce min. wage, union power and employment laws)
Philips Curve (relationship between unemployment and inflation)
search it up idiot
Best Eval. Points
Size of change in policy, PED/PES of good in question, stage in business cycle, business/consumer confidence, existence of spare capacity in economy, time lags
Monetary policy real effects
Affects XR almost immediately, full impact of XR and interest rate change can take 12-18 months, consumer borrowing change quicker though, different sectors more responsive to interest rate changes (housing market, construction sector)
Fiscal policy real effects
Advantage of targeting specific regions or groups, time lags very prevalent though, if mis-timed can make economic cycle more volatile
Other objectives to be considered other than traditional macro. objectives
Environment, inequality, fiscal position
