Super last min (Supply side policy)

Question 1

What is a supply side policy?

Answer 1

Policies designed to shift the productive capacity to the right

Question 2

If a supply side policy is successful what is improved?

Answer 2

All macroeconomic objectives

Question 3

What are the two types of supply side policies

Answer 3

Interventionalist
Market based

Question 4

How do interventionalist supply side policies work

Answer 4

Increases in government spending to improve Quality, Quantity or productive efficiency

Question 5

How do market-based supply-side policies work?

Answer 5

Tax reforms
Labour market reforms
Competition

Question 6

How do TAX reforms increase productive capacity?

Answer 6

Lower coorporation tax, increases retained profits, increasing the firms ability to invest in increasing quality/quantity of FOPs or Increase productive efficiency

Question 7

How do labour market reforms increase LRAS? EXPLAIN BOTH (2 ways)

Answer 7

1. Reductions in minimum wages lower costs of production increasing productive efficiency shifting LRAS rightward
2. Reduce benefits, encourages economically inactive to join workforce- increasing quantity of labour, LRAS shifs

Question 8

Cons of supply side policies. EXPLAIN

Answer 8

Assumes subsidies are used for investment
Assumes retained profits are used for investment

Policies are also expensive, so if it fails there is a large waste -> opportunity cost
How are the high costs funded?