4.4.3 Supply-side policies

Question 1

What are supply-side policies?

Answer 1

Policies which the government implement to improve the long run productive potential of the economy. Any factor which causes LRAS to shift to the right.

Question 2

What causes LRAS to shift outwards?

Answer 2

• An increase in the quantity of labour
• An increase in the quality of labour
• Increase in productive efficiency

Question 3

What is the difference between market-based and interventionist supply side policies?

Answer 3

Interventionist supply side policies are where the governemnt will intervene in the economy to increase LRAS.
Market-based supply side policies is where the market is left free and market forces interact in order to boost LRAS

Question 4

What are examples of interventionist suppy side policies?

Answer 4

• Government speniding on education/training.
• Government subdising firms to promote investment
• Government speniding on health care
• Government spending on infrastructure

Question 5

What are examples of market based supply side policies?

Answer 5

• labour market reform (welfare benefits, NMW, trade union power) to increase investment in capital stock
• tax reform (income /coorporation)
• Competition policy (privatisation and deregulation)

Question 6

What are some costs of Supply side policies?

Answer 6

Costly
time lag
output gap
negative stakeholder impact

Question 7

Explain each

costly

Answer 7

Supply side policies especially interventionist are very costly and so creates an opportunity cost, money could be spent elsewhere. Also may negatively impact governemnts budget defecit.

Question 8

time lag

Answer 8

Supply side policies look to impact the long run productive potenital of an economy thus will take time to see any effect unlike demand side polices which may be more responsive.

Question 9

output gap

Answer 9

Supply side policies may not be the most useful policy to use depending where an economy is within the economic cycle. If in a recession where experiencing a negative output gap then supply side policy will be useless in getting out of a recession as any affects will be see in the long run thus more effective short term policies should be used such as monetary or fiscal

Question 10

-ve stakeholder impact

Answer 10

Market based policies such as labour market reform can negatively impact stakeholders such as employess seeing reduced trade union power, lo.wer standards of living due to lower NMW.