supply side policies

Question 1

Definition

Answer 1

Supply Side Policies are government attempts to increase productivity and shift Aggregate Supply (AS) to the right.

Question 2

Supply side policies examples 1

Answer 2

Privatisation - It is argued that the private sector is more efficient in running business because they have a profit motive to reduce costs and develop better services.
Deregulation - For example BT used to be a Monopoly but now telecommunications is quite competitive. Competition tends to lead to lower prices and better quality of goods / service.
Reducing Income Taxes - It is argued that lower taxes (income and corporation) increase the incentives for people to work harder, leading to more output. Eval - income effect.
Increased education and training - labour productivity- Eval - cost

Question 3

Supply side policies examples 2

Answer 3

Reducing the power of Trades Unions -this increases efficiency of firms e.g. less time lost to strikes and reduce unemployment ( if labour markets are competitive)
Reducing State Welfare Benefits may encourage unemployed to take jobs
Providing better information about jobs - frictional unemployment
Lower Tariff barriers this will increase trade
Subsides (maybe a fiscal)

Question 4

Supply side policies benefits

Answer 4

By making the economy more efficient supply side policies will help reduce cost push inflation. AS right.
Supply side policies can help reduce structural, frictional and real wage unemployment and therefore help reduce the natural rate of unemployment.
Supply side policies will increase the sustainable rate of economic growth by increasing AS.
Improved trade and Balance of Payments - By making firms more productive and competitive they will be able to export more. This is important in light of the increased competition from South East Asia.

Question 5

Supply side policies costs

Answer 5

can take a long time to work its way through the economy. For example, education and training and deregulation.
supply-side policy is very costly to implement. For example, the provision of education and training is highly labour intensive and extremely costly, certainly in comparison with changes in interest rates.
equity - Many supply-side measures have a negative effect on the distribution of income, at least in the short-term. For example, lower taxes rates, reduced union power, and privatisation have all contributed to a widening of the gap between rich and poor.
some specific types of supply-side policy may be strongly resisted as they may reduce the power of various interest groups - trade unions may be threatened by labour market reforms