Supply-side Policies

Question 1

What are the aim of supply side policies?

Answer 1

Increasing the productive potential of the economy and shifting the supply curve to the right

Question 2

What are Market Based Policies?

Answer 2

• Policies designed o remove anything that prevents the free market system operating efficiently

Question 3

What are Interventionist Policies?

Answer 3

• Designed to correct market failure

- Firms tend to look at the short run therefore the government encourage long term investment

Question 4

How might policies increase incentives?

Answer 4

• Increase incentives to work
• Reduction I benefits and tax increases raises opportunity cost of being out of work (Reduces poverty trap)
• Reduced National Insurance contributions to encourage employment in firms
• Removal of minimum wage
• Reduced taxes increasing ROI therefore firms more likely to take risks

Question 5

How might policies increase competition?

Answer 5

• Privatisation

- Competition

Question 6

What is Privatisation?

Answer 6

Selling nationalised companies to private sectors/deregulation whereby less restrictions are places on companies that enter the market to increase competition

Question 7

What is Competition and why is it necessary?

Answer 7

• Used to prevent monopolies in the market and make cartels and price fixing agreements illegal
• Seen as necessary for firms to act as efficiently as possible and offer a cheaper or better service

Question 8

How may policies reform the labour market?

Answer 8

• Increase retirement age for more labour
• More flexibility to increase reactivity to change
• More flexibility with zero hour contracts
• Weakening of unions to prevent higher wages
• Increase info about jobs
• Geographical mobility through cheaper housing
• Cut VAT and relax planing laws

Question 9

How may policies improve skills and quality of the labour force?

Answer 9

• Increased spending on education and training of the work force
• Regulation by forcing businesses to continue to train staff and keep up with developments
• Increase high skilled migrants
• More efficiency through development and investment into technology

Question 10

How may policies improve infrastructure?

Answer 10

• Tax incentives / subsidies on investment

- New technology developed and invested in leads to more efficient production process

Question 11

What are the pros of supply side policies?

Answer 11

• Able to increase output and decrease prices
• Long term policies which lead to long term growth
• Increase in exports can help balance of payments
• 2 approaches allow for all economists to use

Question 12

What are cons of supply side policies?

Answer 12

• Keynesian LRAS shows they will have no effect when it is elastic, demand side is needed
• Govt has to spend money and reduce taxes which can lead to a budget deficit
• Undesirable impacts on AD where higher unemployment and inflation can take place
• Long time lag and hence less effective