Supply Side Policy

Question 1

supply side policies

Answer 1

actions taken by the government to increase LRAS of the economy

Question 2

supply side economy

Answer 2

level of AS and productive capacity of the economy (FOP)

Question 3

succesful SSP

Answer 3

shift LRAS right and not change the price level

Question 4

economic impact of SSP - Gdp

Answer 4

increasing capacity should increase GDP and trend rate of growth
increase in GDP require AD and AS so both must increase

Question 5

economic impact of SSP - employment

Answer 5

lower income taxes will encourage work
reduce welfare benefits t encourage work
deregulation to increase competition and higher output and more job
improvement in education and training should increase occupational mobility
investment in infrastructure to increase geographical mobility

Question 6

impact of SSPs - inflation

Answer 6

higher capacity means AD can increase before capacity is full
demand pull pressure will not emerge until higher level of GDP is achieved

tarde union reform to ease cost push pressure

Competiton means its harder for firms to increase their prices due to declining monopolistic powers

Question 7

SSPs- improvements to current account balance

Answer 7

downward pressure on price = UK more price competitive
more productive workforce = Lower priced uk exports
investment = higher quality = greater demand

Question 8

free market supply side policies

Answer 8

involves removing barriers that prevent the market reaching its most efficient equilibrium and allowing the market to work freely
focus on tax cuts, labour, privatisation and deregulation

Question 9

laffer cuve

Answer 9

shows how high income tax rates can actually reduce tax revenue due to the reduced incentive to work and low taxes can increase revenue

Question 10

SSPs- income tax cuts

Answer 10

increase AD
incentivise amount workers supply labour

Question 11

lower income tax rates benefits

Answer 11

increase LRAS
lower the rate of frictional unemployment

Question 12

reducing trade union power

Answer 12

trade unions use collective bargaining to force wages the the free market rate
imposes higher costs on firms
this will reduce firms demand for labour and lead to lower employment

Question 13

NMW

Answer 13

SSP to reduce nmw so firms demand more labour
however NMW reduces poverty and reduces frictional unemployment

Question 14

reducing employment benfits

Answer 14

cutting them should create an incentive to find jobs
may contribute to poverty and unequal distribution of income
may be worse off due to tax (poverty trap)

Question 15

privatisation

Answer 15

(market based)
increasing efficiency and profit maximisation
accompanied with deregulation (higher competition, lower price and higher output)

Question 16

interventionist SSP

Answer 16

affect AD and AS by higher govt expenditure

e.g education and training, industrial policy,R+D, infrastructure

Question 17

education and training SSP

Answer 17

greater skilled workforce reduced occupational immobility and structural unemployment
increasing productivity of workers and economy productive capacity
subsidising training schemes e.g apprenticeships

Question 18

infrastructure SSP

Answer 18

physical capital e.g. roads and railways
e.g. HS2
reducing geographical immobility

Question 19

how do SSPs reduce natural rate of unemployment

Answer 19

reduce occupation immobility - improvemtnin education, training, R+D,

reduce geographical immobility - investment in infrastrutcure

reduce frictional unemployment - reduction in employment benefits
lower taxes on income

Question 20

benefits of lower natural rate of unemployment

Answer 20

national income can be increased, and AD can increase without risk of inflationary pressures

uk approx 5%

Question 21

limits on SSPs

Answer 21

expensive
time lag
difficult to measure success
reducing workers rights is unpopular
tax cuts most benefit the top earners
cutting benefits may increase poverty