Supply Side Policy

Question 1

what is the aim of supply side policies

Answer 1

to expand the productive potential of an economy, shift LRAS curve

Question 2

Free market supply side policy

Answer 2

increase efficiency by removing things that interfere with the free market, tax cuts deregulation

Question 3

Interventionist supply side policy

Answer 3

correcting market failure like subsiding R and D, improving infrastructure, spending on education

Question 4

what supply side policies would be used in the product market

Answer 4

• incentives for firms to invest like tax cuts for investment
• trade liberalisation
• encourage competition through deregulation and privatisation

Question 5

What supply side policies would be used in the capital market

Answer 5

• deregulate financial markets to make banks more efficient

Question 6

What supply side policies would be used in the labour market

Answer 6

• reduce unemployment benefits to get people to work
• reduce or reform income tax to be progressive
• improve education for more productivity and occupational mobility
• improve labour market flexibility through negotiations with trade unions
• reduce regulations on firms to encourage them to employ more workers

Question 7

benefit of supply side policies

Answer 7

• Manages to avoid conflicts between four main macroeconomic objectives and improves them all at once

Question 8

problems with supply side policy

Answer 8

• huge time lags so not relevant in the short run
• unintended consequences like deregulation can lead to excessive risk taking which its unstable for the economy
• Can be very unpopular like cutting benefits or improving labour market flexibility