2.6.3 Supply-Side Policies - Intro and Evaluation

Question 1

define supply-side policies

Answer 1

a government policy aimed at increasing the productive potential of the economy and making the LRAS curve shift to the right

Question 2

how are SSPs different from MP

Answer 2

• aim to influence LRAS, not AD
• always aim to increase LRAS, not increase or decrease ADA
• long term vs short term

Question 3

define productivity

Answer 3

measure of the degree of efficiency in the use of factors or production, measured in terms of output per factor input per period

Question 4

what are the economic advantages of high productivity

Answer 4

• lower unit costs
• improves competitiveness
• higher profits
• higher wages
• economic growth
• productivity improvements

Question 5

how are lower unit costs beneficial

Answer 5

greater efficiency, lower average costs, economies of scale, higher profits

Question 6

how is improved competitiveness useful

Answer 6

can improve market share and profits, increased exports and higher AD

Question 7

how are higher profits beneficial

Answer 7

increased investment, higher
AD and LRAS

Question 8

how are higher wages beneficial

Answer 8

can attract the best workers

Question 9

how are productivity improvements beneficial

Answer 9

higher tax revenue, greater capital spending

Question 10

how is the impact of supply side policies shown on a PPF diagram

Answer 10

outward shift of curve

Question 11

How do SSPs allow stable economic growth

Answer 11

Actual and potential growth can rise

Question 12

How do SSPs allow low unemployment

Answer 12

As growth rises, derived demand for labour rises

Question 13

How do SSPs allow stable prices/low inflation

Answer 13

Increased LRAS can lead to lower GPL as AD can rise without as much inflationary pressure

Question 14

How do SSPs allow equilibrium on the BOP

Answer 14

Lower inflation, exports more price competitive, higher demand for exports

Question 15

How do SSPs allow protection of environment

Answer 15

More investment into greener infrastructure

Question 16

How do SSPs allow equal distribution of income

Answer 16

More employment opportunities, higher average incomes

Question 17

How do SSPs allow balanced budget

Answer 17

(Free market) higher tax revenue from incomes and lower unemployment benefits spending

Question 18

What is the difference between supply side policy and supply side improvement

Answer 18

• SSP is an active change in policy by the government
• SSI is an increase in LRAS due to a private sector factor

Question 19

Define market based supply side policies

Answer 19

Policies which are designed to remove anything that prevents the free market system working efficiently

Question 20

What do market based SSPs aim to do

Answer 20

Increase incentives and competitive pressures to reduce government intervention, leading to higher efficiency, output and lower prices

Question 21

Give examples of market based SSPs

Answer 21

• tax cuts
• deregulation
• privatisation

Question 22

Which economic perspective favours market based SSPS

Answer 22

New classical

Question 23

Define interventionist SSPS

Answer 23

Policies designed to correct market failure and increase LRAS by the government

Question 24

Give examples of interventionist SSPs

Answer 24

Increasing spending on education and training, raising NMW

Question 25

Which economics perspective favours interventionist SSPs

Answer 25

Keynesian

Question 26

give some key evaluations of SSPs

Answer 26

- lower taxes do not necessarily improve work incentives - deregulating markets can lead to increasing instability - reducing labour market protections risk income insecurity - interventions risk government failure - policies do not operate in isolation