2.6.3 Supply Side Policies

Question 1

What is supply side policies?

Answer 1

They are government policies aimed at increasing the productive potential of the economy by shifting LRAS

Question 2

If supply side policy successful, how can it improve the four macro objectives?

Answer 2

It would reduce inflation

Increase productive capacity of economy

High growth

Low unemployment

Question 3

What is interventionist supply side policies?

Answer 3

They are policies that promote the role of the government in the economy to boost LRAS

Question 4

What are some interventionist supply side policies?

Answer 4

Government spending on education and training
Which improves skill and productivity and quality of labour

Government spending on infrastructure
Improves transport and long run cost of production for firms

Subsidies to firms to promote an investment on R&D for example

And others

Question 5

What are markets based? Supply side policies?

Answer 5

Their policies that aim to reduce government intervention in the economy basically free market

Question 6

What are the three types of areas market based? Supplied side policies? Focus on?

Answer 6

They focus on

Tax reform
Labour market reform
Competition policy

Question 7

Explain how the market based policies of tax reform can improve LRAS

Answer 7

Lower income tax incentivise is the inactive and makes people work harder

Low corporation tax incentivise firms to invest for the long term

Question 8

Explain how the market based supply side policy of labour marker reform can improve Lras

Answer 8

Reducing benefits incentivises the inactive

Reducing minimum wage means lower long run cost of production for firms

Lowering trade union power

Question 9

Explain how the market based supply side policy of competition policy improves LRAS

Answer 9

Privatisation deregulation and trade liberalism

Aim to boost competition as firms will have to lower their long run costs to be competitive

Question 10

What are the cons and evaluative points for these supply side policies?

Answer 10

There’s no guarantee of success
Can be very costly and wasteful for government
Time lags
Negative stakeholder impacts on consumers workers and environment
Depends on output cap economy must be booming
Targeted policies needed