Lesson 33-Supply side policies and government controls

Question 1

Define supply side policies

Answer 1

These are govt policies designed in order to increase AS in the country leading to a rise in greater output thus achieving economic growth.

Question 2

What steps can be taken by a gvt to increase AS

Answer 2

Control trade unions
Reduce state welfare benefits
Reducing NMW
Reduce taxes
Govt expenditure on education and training
Encouraging free trade
Encouraging small businesses
Privatization

Question 3

8 limitations of supply side policies

Answer 3

1. The exploitation of workforce as they will have no power in trade unions and the abolishment of the NMW will mean that firms can provide them low wages which will lower their living standards.
   2.There expenditure on education and training by the govt will be very time consuming and will only be successful in the long run.
2. Their will be an opportunity cost involves when providing subsidies o firms and spending on HCI
3. The removal of trade barriers will encourage consumers to import in large quantities leading to a deficit on the BOP.
4. If the govt reduces tax revenue, a substantial amount of govt revenue will be lost.
5. Reduction of unemployment benefits will cause a fall in living standards.
6. The reduction of the NMW will cause an increase in inequalities in the distribution of incomes and wealth.
7. Increase in the level of AS may not be practical if the level of AD is too low thus demand management policies can sometimes be more effective than supply side policies.