Supply-Side Policies Flashcards
What is a supply side policy?
Policies that are intended to have a direct impact on the long run aggregate supply, specifically the potential capacity output of the economy.
What is a market-based supply side policy?
Policies that rely on allowing markets to work more freely by providing incentives or a means for enterprise and initiative.
What is an interventionist supply side policy?
Policies that are used by the government to stimulate aggregate supply.
What are examples of market-based supply side policy?
Privatisation and deregulation
Improved labour market flexibility
Reform of the tax and benefit system
Give examples of interventionist policies.
Education and training Infrastructure Subsidies Research and development Competition policy Immigrant control
How does privatisation and deregulation stimulate long-run aggregate supply?
Deregulation can help give businesses enough freedom to increase productivity, as it allows for more enterprising and initiative.
How does improved labour market flexibility stimulate long-run aggregate supply?
This can help make a market more dynamic by controlling the amount of freedom businesses have. This will also allow domestic business to keep up with international changes in the market.
How does reforming the tax and benefit system stimulate long-run aggregate supply?
If tax is too progressive labourers will be decentivised to work for higher incomes, if benefits are too high people are more likely to chose to be unemployed.
How does education and training stimulate long-run aggregate supply?
If workers are highly skilled they become less affectent by structural and cyclical unemployment.
How does infrastructure stimulate long-run aggregate supply?
This can help reduce costs in the long run, as it makes transportation costs and living costs lower in the long run.
How do subsidies stimulate long-run aggregate supply?
Governments nudging business in a certain direction, allows for government to make the economy more efficient.
