Supply side policies - market based Flashcards
What are supply side policies?
policies that focus on increasing the supply of goods and services in
an economy to encourage greater productivity and faster economic growth.
What are main aims of SSPs?
- Improve incentives to work and invest in people’s skills (human capital)
- Increase labour and capital productivity
- Increase occupational and geographical mobility of labour
- Encourage start-ups and expansion of new businesses especially those with
significant export potential/promote economic diversification - Improve price & non-price competitiveness in global markets
- Improve the trend rate of sustainable growth of real GDP to help support
improved living standards & better regional economic balance
What are market based SSPs?
Market-based SSPs remove unnecessary government intervention to free up
markets, competitive forces & incentives to increase the long run trend growth rate
List what market based SSPs there are.
- Tax cuts
- Deregulation/Privatisation
- Trade liberalisation
- Intellectual Property protection
- Labour market reform
How are tax cuts a market based SSP?
lowering income, corporate, and capital gains taxes provides individuals and
businesses with more disposable income and greater after-tax profits, thereby
incentivising work, investment, and entrepreneurial activities.
How is deregulation/privatisation a market based SSP?
reducing regulations/bureaucratic red tape
can lower compliance costs and make it easier for firms to operate, expand, and innovate.
Firms may enter markets to make them more contestable/competitive. Private ownership
may increase competitiveness via the profit-incentive.
How is trade liberalisation a market based SSP?
reducing trade barriers, such as tariffs and quotas, can stimulate
international trade and stimulate investment in exports; promotes international
competitiveness.
How is intellectual property protection a market based SSP?
strong intellectual property rights protection encourages
innovation and entrepreneurship by ensuring that creators and inventors can profit from
their ideas and inventions.
How is labour market reform a market based SSP?
more flexibility to reduce costs of hiring and firing; opening up to
inward skilled migration; reducing trade union power
What are problems with market based SSPs?
Income inequality
Reduced social safety nets
Underinvestment in public goods
Market failures
Financial instability
How is income inequality a problem with market based SSPs?
tax cuts that may benefit high-income earners and
reductions in social safety nets can lead to a wider wealth/income gap
How is reduced social safety nets a problem with market based SSPs?
Critics argue these policies can lead to reduced
public services, including healthcare, education, and welfare programmes and
may increase poverty
How is underinvestment in public goods a problem with market based SSPs?
underinvestment in critical public goods like
infrastructure, healthcare, and education may cause slower long-term
economic growth.
How is market failures a problem with market based SSPs?
free markets are not perfect and can lead to market failures,
such as externalities (costs or benefits imposed on third parties) and public
goods problems (goods with non-excludable and non-rivalrous consumption).
How is financial instability a problem with market based SSPs?
deregulation and lack of oversight in financial markets can contribute to financial instability e.g. prior to GFC.
What do SSPs look like on the classical AD/AS model?
In the classical model,
successful SSPs shift LRAS to the
right (LRAS to LRAS1); allows AD
to grow faster without inflation
pressure building
What do SSPs look like on the keynesian AD/AS model?
In the Keynesian model,
successful SSPs shift AS to the
right (AS to AS1); also allows AD
to grow faster without inflation
pressure building
