Supply- Side Policy

Question 1

What is supply side policies?

Answer 1

deliberate actions taken by the government designed to increase the LRAS of the economy

Question 2

What will successful supply side policies lead to?

Answer 2

• shifts LRAS outwards (to the right)

- increase amount that an economy can produce without inflationary pressures emerging

Question 3

What are supply side improvements?

Answer 3

arise out of general increases in the production capacity resulting from businesses acting out of their own interest in improving efficiency and the quantity of their output

Question 4

Differance between supply side policies and improvements?

Answer 4

policies are actions taken by the gov to improve productive capacity, improvements are firms increasing output

Question 5

What can direct taxes on incomes be seen as?

Answer 5

disincentives to work, higher the income, the less attractive work becomes

Question 6

What are two supply side policies for taxation ?

Answer 6

• reducing income tax (more incentive to work, more workers, higher ouput)
• reducing coorporate tax (encourages investment and attracts foreign firms)

Question 7

What is a flexible labour market?

Answer 7

where there are few barriers to firms hiring and firing workers as required

Question 8

What is the purpose of labour market supply side policies?

Answer 8

• create a more flexible labour market by reducing the barriers to entry into differant markets

Question 9

What are further labour market supply side policies?

Answer 9

• reductions in welfare benefits
• trade union reform
• changes in legislation

Question 10

Hwo are reductions in welfare policies a supply side policy?

Answer 10

• making work more financially attractive encourages people into job vacancies
• making being unemployed less attractive, making it harder to recieve welfare benefits and also reducing the value

Question 11

How is the trade union reform a supply side policy?

Answer 11

• taking away legal power from trade unions to make it harder for them to push up wages
• also makes it easier for firms to determine terms and conditions that are more favourable to the business, encouraging firms to hire workers

Question 12

How are changes to legislation a supply side policy?

Answer 12

• employment contracts give workers favourable terms which make it harder for firms to get rid of them, increasing cost to firms
• making it easier to hire and fire workers by reducing rights means more firms will employ and increaes labour market flexibility

Question 13

Explain industrial supply side policies ?

Answer 13

• making markets more competitive

making industries more responsive to market forces should increase output and employment within that industry

Question 14

What are the two types of industrial supply side policies?

Answer 14

• deregulation

- privatisation

Question 15

What is deregulation?

Answer 15

the removal of regulations, usually to allow more competition in a market

Question 16

why is deregualtion a supplyside policy?

Answer 16

• removal of regulations opens up market to allow multiple firms to operate
• removal of barriers of entry should lead to increases in output, less complacency by firms, low prices and higher quality of output

Question 17

What is privatisation?

Answer 17

the sale of a public sector organisation to the private sector - designed to improve the effeciency and profitability of the business

Question 18

Why are private sector organisations run?

Answer 18

benefit of the owners

Question 19

Explain how privatisation is a supply side policy?

Answer 19

• the profit motive ecourages firm to boost profit so owner will recieve higher reward, the profit motive forces form to take action in improving effeciency, cut costs and increase production

Question 20

What are the four other supply side policies?

Answer 20

• training
• education
• infrastructure
• entrepreneurship

Question 21

How is training a supply side policy?

Answer 21

• encouraging firms to spend on training should increase capacity due to increased productivity and reduced immobility of workers

Question 22

How is education a supply side policy?

Answer 22

• gov providing education schemes (apprenticeships) so supply of labour meets demad

Question 23

How is infrastructure a supply side policy?

Answer 23

• • infrastructure is physical capital that facilitates business activity (railways, roads, communication systems)
• govs investing infrastructure will improve geographical immobility and attract new businesses

Question 24

How is entrepreneurship a supply side policy?

Answer 24

• • gov making it easier for new businesses to set up by offering assitance and reducing legal and administrative burdens on new businesses

Question 25

What is the efefct of supply side policies on GDP?

Answer 25

• increasing capacity in economy should increase GDP

- supply side policies need to be used in conjunction with policies to manage AD

Question 26

Effect of supply side policies o unemployment?

Answer 26

• lower income taxes will enourage more work
• reduced welfare benefits will encourage work
• dregulation should increase competition and firms will need more workers
• improvements in education and training should decrease occupational and geographical immobility

Question 27

Effect of supply side policies on inflation?

Answer 27

• higher capacity means AD can increase, leading to lower inflation
• trade union reform should ease cost push pressure as less upward pressure on wages
• more competition in markets will mean it is harder for firms to increaase prices due to declining monopolistic power

Question 28

Effect of supply side policies on balance of payments?

Answer 28

• downward pressure on prices should make UK exports more competitive, imrpoving current account balance
• more productive workfore should lead to lower prices UK output, improving balance
• quality of output should improve, higher demand for UK exports, improving balance

Question 29

What are some limitations of supply side policies?

Answer 29

• tax cuts often favour those with higher incomes
• cutting benefits is more likely to increase poverty
• reducing the rights of workers may prove unpopular with workers
• policies may take many years to take effect