3.3 Supply side policies Flashcards
(19 cards)
What are supply-side policies?
Supply side policies are designed to influence aggregate supply in the economy and increase the rate of economic growth. They can be government led or free market in their approach.
Free market supply side policies became popular in the 1980s in the UK and have been implemented in developing countries worldwide.
What are the four macroeconomic objectives the government aims to achieve?
- Low unemployment
- Steady and sustainable economic growth
- Low and stable inflation (target at 2% CPI)
- Satisfactory balance of payments
What is the long run aggregate supply curve (LRAS)?
LRAS shows the productive potential of the economy.
What factors can increase the productive potential of the economy over time?
- Quality of factors of production
- Quantity of factors of production
- Technological progress
What is privatisation?
Privatisation involves the transfer of publicly owned assets to the private sector.
What is the main advantage of privatisation?
Improved economic performance through competition.
List some major privatisations in the UK.
- British Gas (1986)
- British Airways (1987)
- British Rail (1995-96)
- Royal Mail (2013)
What is the ‘Big Bang’ in relation to the Stock Exchange?
The ‘Big Bang’ refers to the deregulation of the London Stock Exchange in October 1986.
What were the outcomes of the ‘Big Bang’ deregulation?
- Increased trading volume
- Enhanced market capitalisation
- Reinforced London’s position as a global financial hub
What does trade liberalisation involve?
The globalisation of goods and services and factors of production to improve efficiencies and increase productive potential.
Define resource crowding out.
Resource crowding out occurs when government spending displaces resources e.g. the government uses all the available concrete in the economy.
What is financial crowding out?
Financial crowding out happens when increased government borrowing leads to higher interest rates, adversely affecting private sector investment.
What is the relationship between supply-side policies and trade unions?
Reducing trade union power can be seen as a supply-side policy that increases market flexibility.
What are some advantages of supply-side policies?
- Increased competition
- Enhanced efficiency
- Lower taxes for firms and households
What are some disadvantages of supply-side policies?
- Potential for monopoly abuse
- Short-changing taxpayers by selling assets too cheaply
What is meant by a closed shop in relation to trade unions?
A closed shop refers to a workplace where only union members can be hired.
What is the impact of supply-side policies on economic growth?
They aim to enhance the productive capacity of the economy, leading to long-term growth.
Fill in the blank: Supply side policies aim to _______ the productive potential of the economy.
[increase]
True or False: Supply-side policies are primarily focused on increasing aggregate demand.
False
