SSP Flashcards
(22 cards)
What is a supply-side policy?
A government policy aimed at increasing the productive potential (LRAS) of the economy.
What is the main goal of supply-side policies?
To increase long-run economic growth, efficiency, and competitiveness.
How do supply-side policies affect the LRAS curve?
They shift the LRAS curve to the right, indicating increased productive capacity.
What are market-based supply-side policies?
Policies that aim to increase efficiency by improving the workings of free markets.
Give 3 examples of market-based supply-side policies.
Cutting income/corporation tax, deregulation, reducing benefits/unemployment trap.
How does cutting income tax act as a supply-side policy?
It increases the incentive to work and boosts labour supply.
What is the unemployment trap?
When people are disincentivised to work as the gain from working doesn’t outweigh the loss of benefits
How does deregulation improve supply-side performance?
It reduces costs and barriers to entry, increasing competition and productivity.
What are interventionist supply-side policies?
Policies where the government actively invests in or supports areas of the economy to boost supply.
Give 3 examples of interventionist supply-side policies.
Investment in education/training, infrastructure spending, R&D subsidies.
How does improving education and training boost supply-side performance?
It increases human capital and labour productivity.
How does infrastructure spending help the supply side?
It improves transport and connectivity, reducing costs for firms and improving efficiency.
How do R&D subsidies improve productivity?
They encourage innovation, which leads to better technology and more efficient production.
What are the main drawbacks of supply-side policies?
Expensive, time lags, uncertain outcomes, possible equity concerns.
Why do supply-side policies have time lags?
It can take years for policies like education or infrastructure investment to show results.
Why might cutting tax not always increase work incentives?
People might work the same hours and just take home more pay — depends on preferences.
Why might deregulation fail?
It could reduce standards (e.g. in environmental or financial sectors), leading to market failure.
Why are supply-side policies not effective in the short run?
They don’t directly address a lack of demand — e.g. in a recession.
What is the link between supply-side policy and productivity?
Higher productivity increases the output per worker, helping shift LRAS to the right.
Can supply-side policies help reduce inflation?
Yes — by increasing output and efficiency, they reduce cost-push inflation pressure.
Can supply-side policies help reduce unemployment?
Yes — especially structural unemployment, by improving skills and incentives to work.
What is the link between supply-side policy and international competitiveness?
They can lower costs and improve quality, helping exports and reducing the current account deficit.
