Supply-side Policy Flashcards
Supply side polices are government…
…attempts to increase productivity and shift AS to the right
Examples of supply-side
1) Privatisation, deregulation and subsidies
2) Reforming the tax and benefit systems
3) Immigration control
The AS has shifted right meaning the government has increased the size of the economy…
…in other words, more resources are available to the economy than previously. Or else, the resources that are already there are used more efficiently. Outcome: higher Real GDP, lower PL (assuming that AD has not changed)
What advantage do supply-side polices have?
That they do not increase the PL - they are not inflationary
When may supply-side policies tend to be ineffective?
If the economy is in a recession, high unemployment, negative output gap, there is no point in increasing capacity if you are not using your current capacity to the full
Free-market policies involve…
…policies to increase competitiveness and competition
Interventionist supply-side policies involve…
…government intervention to overcome market failure
Name some free-market policies?
1) Privatisation
2) Deregulation
3) Reducing income tax rates
4) Deregulate Labour Markets
5) Reducing the power of trade unions
6) Reducing unemployment benefits
Privatisation
Selling state-owned assets to the private sector - more efficient
What is Deregulation?
Reducing barriers to entry to encourage new firms to enter the market
What would the impact be on reducing income tax rates
Increase the incentives for people to work harder
What would the impact be on deregulating labour markets
Make it easier to hire and fire workers
What would the impact be on reducing the power of trade unions
Reduces the ability of trade unions to go on strike
What would the impact be on reducing unemployment benefits
Encourage the unemployed to take jobs
What are Interventionist policies?
Involve the government becoming directly involved in the economy. Similar to fiscal policy but objective is different - the aim to affect AS
