Supply Side Policy

Question 1

Evaluate Privatisation as a Supply Side Policy

Answer 1

Some would say a properly regulated monopoly could more easily achieve economies of scale and pass these savings onto consumers

Question 2

Explain Government support for small firms as a supply side policy

Answer 2

Supporting small businesses by reducing costs through reducing tax and/or giving business advice to owners will increase the number of new firms and will be likely to increase employment, so increasing LRAS

Question 3

Evaluate Government support for small firms as a supply side policy

Answer 3

Supporting small firms will only work if there is sufficient demand in their market, so support from governments will not work on its own

Question 4

Explain government support for research and development

Answer 4

Increases in government spending on R&D increases aggregate demand and innovation/creation of intellectual property will increase LRAS

Question 5

Explain Privatisation as a supply side policy

Answer 5

Privatisation will improve competitiveness, which increases productivity and lowers costs, which increases LRAS.

Question 6

What is supply side policy?

Answer 6

any policy intended to improve the productive capacity of the economy (shifts the AS curve to the right)

Question 7

Do supply side policies focus more on short or long run results?

Answer 7

Long run

Question 8

Keynesians like supply side policy, what do classical/monetarists think?

Answer 8

They think that the economy is always in full employment in the long run so supply side policy is unnecessarily interventionist

Question 9

What factors affect short run aggregate supply?

Answer 9

• Change in commodity prices
• Change in wage rates
• Environmental or Health and safety regulations can change
• Increase or decrease in corporation tax.

Question 10

What factors affect long run aggregate supply?

Answer 10

New raw material discovery can increase LRAS

Innovation (changes in technology)

Question 11

Define short run aggregate supply

Answer 11

Short run aggregate supply, ceteris paribus, shows the relationship between the total quantity of goods and services supplied, (I.e. Real output), and the price level.

Question 12

Define long run aggregate supply

Answer 12

Long run aggregate supply is the relationship between the total quantity of final goods and service supplied, I.e. Real output, and the price level when there is full employment of resources.

Question 13

Explain and evaluate cutting taxes as a supply side policy

Answer 13

Cutting taxes would decrease the cost of production to firms, which would increase aggregate supply, but at the same time, decrease in tax revenue to the government would lead to increase in budget deficit, which would decrease AD as well, as the government would likely have to undergo deflationary fiscal policy in order to combat the increase in the deficit. This would also likely decrease the rate of inflation.

Question 14

Explain removing patents as a supply side policy to increase competition

Answer 14

Removing patents would increase aggregate supply as it would remove the barrier to entry to a profitable market , making it more competitive, leading to lower prices and better quality of goods and services as the increased number of firms in the market compete for profits.

Question 15

Explain cutting benefits as a supply side policy

Answer 15

Improves AS by incentivising people to work so employment increases as well. Decreases deficit/increases surplus because less govt spending, so govt could decrease income tax to increase consumption or spend elsewhere