Theme 2: Supply Side policies

Question 1

What are supply side policies?

Answer 1

Any government policies which aim to increase the aggregate supply in the economy.

Question 2

What are the 2 types of supply side policies?

Answer 2

1. Interventionalist- when the government increases its intervention in the economy. eg infrastructure making it cheaper and easier for firms to transport goods increasing SRAS.
2. Market based policy- when the government decreases intervention in the market. eg instead of building new roads they decrease the tax on fuel which reduces the cost for firms increasing SRAS.

Question 3

Give one advantage and one disadvantage of reducing opportunity costs?

Answer 3

+Investment leading to a shift in AD and economic growth

+Reduce cost of production encouraging new firms to enter the market

-Reduce tax revenue that could be spent elsewhere

Question 4

What are the advantages and disadvantages of reducing the national minimum wage?

Answer 4

+decrease cost of production for firms increase SRAS

• reduce disposable income for many households
• workers may emigrate

Question 5

Give one advantage and one disadvantage of subsidising university education.

Answer 5

+lower priced course which encourages to pursue higher education

-decrease in the supply of labour which increases costs of production

Question 6

What are a few examples of supply side policies to increase AD?

Answer 6

1. Infrastructure spending
2. Reducing corporation tax
3. Reducing minimum wage
4. Deregulation
5. Education spending
6. Reducing income tax
7. Reforming benefits
8. Healthcare spending

Question 7

What is an advantage and a disadvantage of increasing spending on healthcare?

Answer 7

+Increase productivity

Inefficient or poor quality healthcare and more money may not improve efficiency.

Question 8

How much money a year do firms lose in productivity due to worker ill health?

Answer 8

£77bn