supply side policy

Question 1

what are SSP

Answer 1

Policies designed to increase productive capacity of economy shifting LRAS to the right

Question 2

If ssp are succesful what will ipmorve

Answer 2

all 4 main macro econ objectives will improve

Question 3

how do we know SSP leads to all 4 main macro econ objectives improvin

Answer 3

LRAS shifts right so we see increases in econ growht rates

With that we see reductions in unemployment -

We see reductions in LT rates of inflation

From this we can deduce improvements in current account position(trade) as exports are more competitive

Question 4

how does ssp reduce nuemploymen

Answer 4

upply side policies target types of unemployment in natural rate
Frictional and structural particularly

Question 5

what are teh 2 types of SSP

Answer 5

Market based SSP
Interventionist SSP

Question 6

The 2 types of SSP fundamentalyy diff but

Answer 6

have the same end goal as both try increase LRAS and boost prod cap of the econ

Question 7

WHAT DO interventionist supply side policies promote

Answer 7

more of arole for hte givernemnt

Question 8

What do market based ssp promo

Answer 8

Reduce and take away role of govt from operation of markets in economy ,

let them be freer as this boosts efficiency and productivity and competition -

promoting right incentives which will cause boost un Lras

Question 9

whata re the 4 reasons LRAS shifts right

Answer 9

Increase in quantity of FOP
Increase in quality of FOP
Increase in productive efficiency of the economy - reduction in long run costs of production for bs across the economy

Question 10

inteerventionis policies are x x dominated

Answer 10

gov spending

Question 11

what are the 4 inteventisont spp polciies

Answer 11

gov spedning on education and training

gov spending on healthcare

gov spedning on infrastructure

subsideies give to firms to promo investmet/r&D

Question 12

what ar ehte 3 main market based approaches

Answer 12

tax reforms

labour market reforms

competition policies

Question 13

in terms sspolciies the first few policies we’ve looked at look like expansionary fiscal policy how can we call em ss

Answer 13

its sobre intention

these polcieis intedned to boost LRAS

but if talking baout hese to oost AD theybecoem expansionary fiscal policy

Question 14

give 4 exmaples gov spending on edcucation an training

Answer 14

building new schools
recruiting and trainign mroe teachers
curriculum reforms
adult training

Question 15

how is gov spending on education and trainig boosting lras

Answer 15

intention is to boost skills of workforce and therefore boost productivity of labour which is improvement in quality of labour shifting LRAS right

Question 16

explain how gov spendong on healthcare is a SPP

Answer 16

aims to boost productivity of workforce - as lesss likely to be out of owrk if health can produce more - improving quality - shifting LRAS right

Question 17

in terms of gov spending on infrastructure what ar eht two ways we can look at this

Answer 17

transport nfrastrcure

building of chools and hospitals

Question 18

explain how gov spednign on tranpsoert infrastrucure is a ssp

Answer 18

if transport infrastructure is better

new being built / existing transport infrastructure being upgraded (roads, ports ,

this means long run costs for production of bs fall as easier and cheaper to access raw materials and easier and cheaper to sell goods and services

Therefore productive efficiency in econ will rose

Question 19

explan how gov spending on infrastructure in terms of building new schools and hospitals will be a ssp

Answer 19

new infrastructure or better infrastructure increase quantity of capital stock in economy which increases quantity of capital boosting LRAS that way

Question 20

investment is when

Answer 20

firms spend on capitla goods

Question 21

explain how subsideis give by firms to promo investment or R&d works

Answer 21

subsidies are here to target firms spending on r&d or buying new capital /upgrading/new technology/factory expansion - as long as it s investment

I can increase quantity , quality as well as reduce long run costs of production for bs , shifting LRAS right

Question 22

what are the tax reforms that can be used

Answer 22

lower income tax
lower corp tax

Question 23

what ar ethe labour market reforms

Answer 23

reduction in benefits and welfare payments

reduction in min wages

reduction in trade union power

Question 24

what ar eht competition policy

Answer 24

deregulation
privaitsaion
trade liberalisation

Question 25

explain how lower income in terms of tax reforms can be a ssp

Answer 25

for those inactive and outside of labour force there’s incentive for them to enter labour force and become active increasing quantity of labour and boosting lras

Those in work have incentive to work harder , be more productive , earn more income as can keep more as disposable income , this boosts quality of labour and productivity and shift lras

Question 26

explain how loer corp tax in terms of tax reforms can be a ssp

Answer 26

means firms got more retained profits which may use for investment which increases all 3

Question 27

in terms of labour mkt reforms how does reducing beenfits /welare payment sact as a ssp

Answer 27

• strong incentive for weconomically inactive to enter labour force in order to fins work increasing quantity of labou shifting LRAS right

as can get more income by being in work than on ben

Question 28

in terms of labour mkt reforms reduction in min wages and reduction in trade union power how is this ssp

Answer 28

both drive up COP for bs so if we reduce in wages and union power this reduces LR cost of production for bs - boosting prod efficiency therefore boosting LRAS

Question 29

how does enforcing copmetition policy act as as ssp

Answer 29

boost comp across econ

if this happens firms have to reduce LR COP to be competitive and survive in competitive markets improving prod eff across econ boosting LRAS

Question 30

what are our 6 eval points

Answer 30

no guarantee sucess

ssp are costly

time lags

mkt based ssp can have -ve stkh impacts

depends on output gap

need for targetted ssp

Question 31

explain eval - no guaranete of success

Answer 31

firms might subsidies for investment but instead higher incomes for sh

No guarantee lower corp tax leads to investment - could use as sof instead - esp if high uncertainty casued by high inflation in uk

Comp policies may not boost comp - especially not in the sr

So could fail

Question 32

explain evla polciies are costly

Answer 32

Real risk and danger of wasteful spending on ssp esp interventionsit supply side policies as very expensive

we can question how these are funded and raise more issues for future - opp cost of paying debt interest

Even tax reforms carry significant cost as gotta cut gov spedning from another area e.g ?- do gov ad thinf
from somewhere -

lower sol for those on beenfots that cant work due to beng carers etc

Question 33

time lags eval

Answer 33

gov spending infrastructure could be many years and decades before infrastructure projects completed

Education And training - takes many years before start seeing improvements in productivity

so not good for SR

Polciies e.g tax cuts whihc start in next fiscal year before we start seeing investmen and increase in LF due to lower Y tax

Question 34

market based ss can have negative impacts on stkh - eval - explain

Answer 34

Labour makret reforms ar harsh and for those esp on lower incomes , there can be a decrease in living standards if the reforms take place - conflict macor obj

Policies like deregulation - what laws and regulations are being relaxed or taken away e.g product safety laws, environmental laws ,health and safety . planning
If that’s true neviro could be damaged significantly
Workers safety impacted
Consumer safety impacted
Laws taken away or relaxed may not be interest of society and harm key stkh in econ WHICH ISNT DESRABLE
Increase the cost of negative externalities
A decrease in product quality

Question 35

explain eval ouput gap

Answer 35

Impact of ssp in boosting growth dpends on sizeof output gap and what stage of economic cycle econ is in

In recession - ssp useless at boosting growth

Booming - and at full employment then ssp very effective nand healthy for econ

Question 36

explain eval need for targetted ssp

Answer 36

So many diff types of policies tht could eb used but need to be used to target issues in teh econ

E.g infrastructure problems - spend on infrastructure
If productivity is low - use ssp that impact productivity
i f competition is lacking use ssp that target that

need to combat issues if not , theyre ineffective