3.7.2 - Interventionist Supply-side Policies

Question 1

Define interventionist supply side policy

Answer 1

An interventionist supply-side policy is where the government is actively involved in the supply side of the economy to achieve its macroeconomic objectives. (Increase LRAS)

Question 2

Methods to increase long run economic growth

Answer 2

• Education and training
• Healthcare
• Infrastructure
• Research and development
• Industrial policies

Question 3

Elaborate on education and training to increase long run economic growth

Answer 3

Increase productive potential of the labour force

Question 4

Elaborate on healthcare to increase long run economic growth

Answer 4

Healthier population more likely to be productive

Question 5

Elaborate on infrastructure to increase long run economic growth

Answer 5

Good infrastructure = higher productivity levels

Question 6

Elaborate on R&D to increase long run economic growth

Answer 6

Innovation + new tech; subsidise R&D

Question 7

Elaborate on industrial policies to increase long run economic growth

Answer 7

Intervene to change the economy’s production structure

Question 8

Strengths of interventionist supply side policies to increase long run economic growth

Answer 8

• Targeted
• Can lead to higher output and lower price level
• Increases potential so long term gains
• Healthcare and education are associated with external benefits

Question 9

Weaknesses of interventionist supply side policies to increase long run economic growth

Answer 9

• Op cost
• Associated with inefficiency and bureaucracy
• Subject to political influence

Question 10

Methods to reduce unemployment

Answer 10

• Education and training
• Trade protectionism
• Employment agency
• Direct government employment
• Employment subsidies

Question 11

Elaborate on education and training for methods to reduce unemployment

Answer 11

reduce structural unemployment

Question 12

Elaborate on trade protectionism for methods to reduce unemployment

Answer 12

protect domestic employment from foreign firms

Question 13

Elaborate on direct government emplyoment for methods to reduce unemployment

Answer 13

unemplyment is reduced by employing workers in the public sector

Question 14

Elaborate on employment subsidies for methods to reduce unemployment

Answer 14

state paying part of the wages of workers

Question 15

Strengths of interventionist supply side policies for methods to reduce unemployment

Answer 15

• Effective at targeting frictional and structural unemployment
• can impact demand deficient unemplyoment in a recession

Question 16

Weaknesses of interventionist supply side policies for methods to reduce unemployment

Answer 16

• op cost
• bureucratic and inefficient
• trade protectionism may fuck up relations
• cannot handle if unemplyoment is caused by recession

Question 17

Methods to reduce inflation

Answer 17

• Incomes policy
• Price controls (maximum prices)

Question 18

Elaborate on incomes policy to reduce inflation

Answer 18

setting limit on wage increases to prevent wage price spiral, reduces impact of cost push inflation

Question 19

Elaborate on price controls to reduce inflation

Answer 19

Price ceiling on energy and food basically

Question 20

Strengths of interventionist supply side policies to reduce inflation

Answer 20

• Can target cost push inflation directly
• Don’t reduce AD and growth rate

Question 21

Weaknesses of interventionist supply side policies to reduce inflation

Answer 21

• Wage control can reduce real incomes and lead to poverty
• Industrial confliuct and unrest
• Firms can find loopholes around wage controls
• Maximum price leads to parralle markets and shortages