Supply-side policies Flashcards
What does the position of the AS curve depend on?
The quantity factor inputs available in the economy
What are supply-side policies?
A range of measures to increase AS and the potential output of the economy
Why might improvements in the supply side sector of the economy rise from the private sector rather than government policy?
The private sector want to boost labour productivity in order to reduce costs and become more competitive
What are supply side policies designed to do? (3)
Increase the productive potential
Make markets more efficient
Increase the rate of economic growth
What are some examples of supply-side policies? (4)
Labour market measures
Tax reforms
Reform on the welfare state
Industrial and competition policy
What are labour market measures?
Improving education and training
What are tax reforms?
Reducing the overall burden of income tax
What is the reform of the welfare state?
Reducing state welfare benefits
How does reducing state welfare benefits increase AS?
Creates an incentive for people to go to work
What is industrial and competition policy? (2)
Privatisation
Deregulation
What are the 2 approaches to improve the supply-side?
Labour market
Product market
What is the labour market?
An example of a factor market, in this case labour is bought and sold
What is the product market?
Markets in which all kinds of goods and services are traded
What are policies aimed at the labour market intended to do?
Improve the quality and quantity of the supply of labour available in an economy
By increasing the quantity and quality of the supply of labour, what risk is being reduced?
the risk of structural unemployment
If the government introduce education and training schemes, how will this affect labour force? (4)
Productive
Mobile
Flexible
Improve international competition
What is a trade union?
An organisation of workers set up to negotiate on wages, working hours and working conditions on behalf of its members
How do trade unions affect the supply-side of an economy?
Increases wages = higher costs = reduces efficiency = reduced competition
What are policies aimed at the product market intended to do? (2)
Increase competition and efficiency
What is privatisation?
Sale of government owned assets to the private sector
What is deregulation?
The process of removing government controls from markets
How does privatisation affect the supply-side of the economy?
Privately owned assets have more incentives to be efficient and competitive
How does deregulation affect the supply-side of the economy?
Makes markets more competitive
Why is competition a good thing?
Forces a business to become more efficient in the way they use scarce resources
What is corporation tax?
A tax on company profits
How does a higher tax rate on investment income affect the level of saving?
Saving will fall because the return on saving has decreased
