Supply-Side Policies

Question 1

What is supply-side policy?

Answer 1

Supply side policies are economic strategies aimed at increasing the productive capacity of an economy by improving the ability to produce goods and services

Question 2

What is productivity?

Answer 2

Productivity is the efficiency of production, often measured as output per worker or per hour worked

Question 3

What are the main aims of supply-side policies?

Answer 3

Improve incentives to work
Increase labour and capital productivity
Increase capital investment
Promote innovation
Encourage start-ups
Improve competitiveness
Improve trend rate of growth
Support living standards

Question 4

What are market-based supply-side policies?

Answer 4

Market-based SSPs remove unnecessary government intervention to free up markets, competitive forces and incentives to increase the long run trend growth rate

Question 5

What are the types of market-based supply-side policies?

Answer 5

Tax cuts
Deregulation/Privatisation
Trade Liberalisation
Intellectual Property Protection
Labour Market ReformW

Question 6

How do tax cuts increase economic growth?

Answer 6

Tax cuts provide individuals and businesses with more disposable income incentivising work, investment and entrepreneurship

Question 7

How does deregulation/privatisation increase economic growth?

Answer 7

Reducing regulations lower compliant costs making it cheaper to operate, expand, and innovate
Encourages new entrants increasing competitiveness
Private ownership increases competitiveness through profit motive

Question 8

How does trade liberalisation increase economic growth?

Answer 8

Reducing trade barriers stimulates trade and investment in exports, promoting competitiveness

Question 9

How does intellectual property protection increase economic growth?

Answer 9

Strong intellectual property protection encourages innovation and entrepreneurship by ensuring inventors can profit from ideas

Question 10

How do labour market reforms increase economic growth?

Answer 10

More flexibility reduces costs of hiring and firing, encouraging inward skilled migration and reducing trade union power

Question 11

What are the issues with market-based SSPs?

Answer 11

Income Inequality
Reduced Social Safety Nets
Underinvestment in public goods
Market Failures
Financial Instability

Question 12

How do market-based supply side policies result in income inequality?

Answer 12

Tax cuts may benefit high income earners

Question 13

How do market-based supply side policies reduce social safety nets?

Answer 13

Policies can lead to reduced public services and welfare programmes increasing poverty

Question 14

How do market-based supply side policies cause underinvestment in public goods?

Answer 14

Underinvestment in public goods due to opportunity costs may slow long term economic growth

Question 15

How do market-based supply side policies lead to financial instability?

Answer 15

Deregulation and lack of oversight in financial markets contribute to financial instability

Question 16

What are interventionist supply-side policies?

Answer 16

Interventionists believe the government can directly intervene to improve the long-term supply-side of the economy

Question 17

What are the types of interventionist SSPs?

Answer 17

Investment in infrastructure
Interventions to reduce poverty
Provisions of public and merit goods
Investment in ideas
State ownership of key businesses
Policies to tackle labour market failure

Question 18

How does investment in infrastructure increase economic growth?

Answer 18

Government investment in capital such as transport and communication helps private sector businesses

Question 19

How do interventions to reduce poverty increase economic growth?

Answer 19

It enables those on low incomes to find work and contribute to the economy
More entrepreneurship and improved labour productivity

Question 20

How do provisions of public and merit goods increase economic growth?

Answer 20

Government can invest in human capital
Spending on public goods improve security and communication encouraging FDI and investment

Question 21

How does investment in ideas increase economic growth?

Answer 21

Government funding R&D lead to more innovation, dynamic efficiency, and competitiveness

Question 22

How does state ownership of key businesses increase economic growth?

Answer 22

Nationalisation of important industries (water, gas) can help an economy develop and encourage private sector businesses to invest and grow

Question 23

How do policies to tackle labour market failure increase economic growth?

Answer 23

Government provision of training increases occupational mobility
Regional policy improves geographical mobility
Immigration systems ensure skill gaps and labour shortages are solved

Question 24

What are the issues with interventionist SSPs?

Answer 24

Bureaucracy and inefficiency
Crowding out private sector
Reduced incentives
Ineffective Redistribution
Costly and Inefficient state enterprises

Question 25

How do interventionist SSPs lead to inefficiency and bureaucracy?

Answer 25

Government intervention leads to bureaucratic inefficiencies slowing economic processes leading to misallocation of resources

Question 26

How do interventionist SSPs lead to crowding out the private sector?

Answer 26

Interventions involving public ownership crowds out private investment and entrepreneurship

Question 27

How do interventionist SSPs reduce incentives?

Answer 27

High taxation and extensive regulation reduces incentives to work, invest, and innovate

Question 28

How do interventionist SSPs lead to ineffective redistribution?

Answer 28

High levels of taxations lead to capital flight and tax evasion, undermining intended redistribution

Question 29

How do interventionist SSPs lead to costly and inefficient state enterprises?

Answer 29

State enterprises can become inefficient and financially burdensome as they do not operate to the same degree as private companies

Question 30

What are evaluations for SSPs?

Answer 30

Time Lags Income Distribution Potential for Government Failure