Supply Side Policies: Flashcards
What are Supply Side Policies ?
Policies designed to increase the productive capacity of the economy , shifting LRAS right
What is the result of successful Supply Side Policies ?
All 4 main macroeconomic objectives are achieved.
low and stable inflation,
sustainable economic growth
low unemployment
favorable balance of trade
What are the three interventionist SSPs ?
- Gov.Spending on Education/Training
- Gov.Spending on Infrastructure
- Subsidies for firms to promote investments
What types of Unemployment do SSPs target ?
Natural - Frictional, Structural
How is inflation affected by successful SSPs ?
Reductions in long-term inflation
How is the BOP affected by successful SSPs ?
Improvements in Current Account Position
What are the main aims of the SSP: To Increase Incentive ?
Governments can reduce income and corporation tax encourage spending and investment.
What are the main aims of the SSP: To promote Competition ?
By deregulating or privatising the public sector , firms can compete in a competitive market, which should improve economic efficiency.
What are the main aims of the SSP: To reform the labour market ?
- Reducing the NMW will allow free market forces to allocate wages and the labour market should clears
- Reducing trade union power makes employing workers less restrictive and it increases the mobility of labour
What are the main aims of the SSP: To improve skills and quality of the labour force ?
- The government could subside training or spend more on education . This lowers costs for firms.
- Spending more on healthcare helps improve the quality of the labour force and contributes towards higher productivity.
What are the strengths of SSPs ?
- Only policy that can deal with structural unemployment, because the labour market can be directly improved with education and training.
What are the weaknesses of SSPs ?
- Demand side policies are better at dealing with cyclical unemployment , since they can reduce the size of negative output gap and shift the AD curve to the right
- Significant time lags
- Market based SSPs such as reducing tax rate can lead to a more unequal distribution of wealth.
What are Interventionist SSPs ?
Require government intervention in order to increase the full employment level of the economy
What are the 5 goals of SSPs ?
- Long Term Growth
- Improving Competition
- Increase Labour Market Flexibility
- Increase International Competitiveness
- Increase Incentives
How do SSPs impact Economic Growth ?
The potential national output increases, leading to higher real gross domestic product (rGDP)
What are Market Based SSPs ?
Policies that reduce government inclusion in the operation of markets.
What are the 3 generic factors that shift LRAS right ?
- Increased Quantity of FoP
- Increased Quality of FoP
- Increased Productive Efficiency
What are the three main Market Based SSPs ?
Tax Reform
Labour Market Reform
Competition Policy
What are the evaluations of SSPs ?
- No guarantee of success
- Cost
- Time lags
- Negative Shareholder Impacts
- Output Gap (Useless in recessions)
- Need for targeted SSPs
What are the two factors that make up the Market Based SS: Tax Reform ?
- Lower Income Tax
- Lower Corporation Tax
What are the three factors that make up the Market Based SSP: Labour Market Reform ?
- Reduce Benefits
- Reduce Min.Wages
- Reduce Trade Union Power
What are the three factors that make up the Market Based SSP: Competition Policy ?
- Privatisation
- Deregulation
- Trade Liberation
