Supply-Side Policies Flashcards
What are supply-side policies?
Policies aimed at increasing the long-run aggregate supply (LRAS) by improving productivity and efficiency in the economy.
What are the two types of supply-side policies?
Market-based
Interventionist
What is market-based SS?
Centered around freeing up the market by removing any government intervention.
What is interventionist SS?
Government intervention.
Goals of supply-side policies
Economic growth
Lower inflation
Lower unemployment
Improved net exports
Long-term productivity increases
What are the 3 main branches of market-based policies?
To increase incentives.
To improve competition and efficiency.
To reduce labour costs and improve labour market flexibility.
Market-based policy: To increase incentives.
Reduce income tax
Reduce corporation tax
Reduce capital gains tax
What are capital gains tax?
It’s a tax on the profit you make when you sell an asset.
Market-based policy: To improve competition and efficiency
Deregulation
Privatisation
Anti-monopoly regulation
Market-based policy: To reduce labour costs & improve labour market flexibility.
Weaken trade unions
Abolish/reduce minimum wage
Reform unemployment benefits
What are the main types of interventionist supply-side policies?
Education and training
Healthcare
Research and development
Infrastructure
Industrial policies
How does education and training support supply-side goals?
Gov’t spends on education & retraining → workforce quality improves → productivity rises → costs fall → firms reduce prices → exports become more competitive
How does R&D boost long-term growth?
Gov’t invests in innovation → creates new industries & jobs → rGDP rises → increases long-term potential output
What are industrial policies?
Targeted subsidies to firms/industries.
What are the demand side effects of interventionist supply-side policies?
Many involve government spending, which boosts AD.
What are the demand side effects of **market-based **supply-side policies?
Market-based supply-side policies include tax cuts on both households and businesses, which will increase their disposable incomes/profits. This will result in more consumption and investment, boosting AD.
How can fiscal policy have supply-side effects?
Fiscal policies like education subsidies improve human capital → raises productivity and LRAS over time.
Advantages of market-based supply-side policies.
Improved resource allocation
No burden on government budget
Disadvantages of market-based supply-side policies.
Equity issues
Time lags
Environmental impact
Advantages of interventionist supply-side policies.
Targeted support
Living standards
Disadvantages of interventionist supply-side policies.
Cost
Time lags & political change
