Supply side policies Flashcards
Supply side policies
Supply side policies are policies aimed at making markets and industries operate more efficiently and contribute to a faster underlying rate of growth of real national output
Why must there be high AD
So that the productive capacity of an
economy is actually brought into play
Who can supply side policies be implemented by
Private and/or public sector
Objectives of supply side policies (8)
- Improve incentives to look for work & invest in people’s skills
- Increase labour & capital productivity
- Increase occupational & geographical mobility of labour to help reduce rate of
unemployment - Increase investment & research & development spending
- Promoting more competition & stimulate a faster pace of invention and innovation to improve
competitiveness - Provide a platform for sustained non inflationary growth
- Encourage start up of new businesses/enterprises especially those with export potential
- Improve trend rate of growth of real GDP
Supply side challenges for the UK (8)
- Low trend growth rate of real GDP
- Rise of Emerging Natons
- Low capital investment & research
- Rising inequality/relative poverty
- Persistent Productvity Gap
- High rates of youth unemployment
- Deep and widening regional economic divide
- Structural trade deficit (current account of BoP)
Market bases supply side policies (8)
- Cutting government spending & borrowing
- Lower business taxes to stimulate investment & lower income taxes to improve work incentives
- Reducing red-tape to cut costs of doing business
- Measures to improve the flexibility of labour market/reforming employment laws
- Policies to boost competition like deregulation & anti-monopoly & anti-cartel laws
- Privatisation of state assets (selling off public sector businesses into private sector)
- Opening up an economy to overseas trade and investment
- Opening up an economy to inward labour migration
Interventionist supply side policies (8)
- State has key role in investing in public services & building critical infrastructure
- Tax incentives & welfare reforms can encourage more people into work
- A commitment to a fair minimum wage/ living wage to improve work incentives
- Active regional policy to boost under-performing areas/of high unemployment
- Some case for selective import controls to allow domestic industries to expand
- Management of exchange rate to improve competitiveness of export industries
- Nationalisation of some key industries
- Stronger regulation of industries
Product market supply side policies
To increase competition and efficiency (markets in which G&S are made and traded e.g. airline travel or new cars)
Privatisation
Privatization is designed to break-up state monopolies & create more competition e.g. BA and British Gas
Deregulation of markets
To expand market supply (driving prices down) & increase choice for
consumers
Trade between nations
Creates competition for improvements in costs and lower prices for consumers
Supply side policies for labour market
These policies are designed to improve the quality and quantity of the supply of labour
TU reforms
Improved partnerships between trade unions & employers can make a big contribution to raising productivity & improving flexibility of workers in their jobs
Increased spending on education & training
Improves productivity, employability, human capital, attracts foreign investment & reduces structural employment
Lower income tax
Can give an incentive to work longer hours or have another job
