Supply Side Policies Flashcards
(24 cards)
What are supply side policies
Government policies to shift LRAS outward to increase productive potential of the economy
What is supply side improvements?
Specific actions mad eby firms to inhance its performance and shift supply
What are thigns supply side improvements do?
- Adopt new production techniques
- Implement quality control measures
- Streamline supply chaines
- Train their workers
- Invest in tech and machineary
What agents drive supply side improvements
(For example) Businesses, workers and tech advances
What are the goals of supply side policies
- Long term growth
- Increase competition
- Increase laboru market flexibility
- Increase international competitiveness
- Increase incentives
How can supply side policies effect ifnlation?
Can reduce cost push (deregulation and taxes)
Demand pull inflation could decrease as more supply and potential output
How do supply side policies effect BOP
Increase exports from international competititveness
BOP on current account improves
What is the NRU?
Level of unemployemnt that exists when economy is operating at full potential (frictional and structural)
List how Supply side policies can decrease NRU
- Investment in Human capital can increase labour market flexibility (education adn training)
- Subsidies for small business and tax incentives can encourage entrepreneurship and create new jobs
- Deregulation make it easier to enter market
- Everything increase potential output, more labour needed
What do free market supply side policies do?
Aim to improve incentives as to increase LRAS
Free market suppyl side policys list
- Reducing income/coporation/ capital gains tax
- Deregulation (reduce cop) and privitisation ]
- Anti-monopoly regulation
- Decrease trade union power and abolish min wage and restrict unemployent benefits
What does the trade union do?
Advocate for higher wage rates
Draw diagram of minimum wage and how abolishing can sitm LRAS
- Decrease in COP, lower price, international competitiveness higher
- Increase in employees as can afford such
What are advantages of free market supply side policies
- Improves allocation of resources (increased productive potentil requires more efficient use of resources)
- No burden on governmetn budget
What are disadvantages on Free market supply side policies?
- Equity issues
- Time lags (ripple effect must take place)
- Environmental impacts
What are interventionist supply side policies
Require government intervention to increase full employment level of output
What are ways of interventionist supply side policies?
- Spending on education, training, healthcare
- Increase spending on innvoation
- Increase investment on infulstructure
- Subsidies
Give the chain of anaylses from a decrease in COP
Cop decrease - supply increases - lower selling prices - international competitveness
Why does a decrease in COP increase supply and lower price?
It becomes more profitable for producers to offer more g/s at any given price. Producers will earn higher prices for each unit produces, incentivising them to increase output.
What are advantages of Interventionist SSP
- Increase in livign standars from improvenments in infulstructure
- Increase in employment, increase level of exports, Current account improves
- Economic growth
How can subsidies lead to economic growth?
Stimulates productions, boosting investment and encourages investment
What are disadvantages of Interventionist SSP
- Opportunity cost in spending
- gov budget deficit
- Time lafs
- Changes in gov can change policies, potnetially makign somethign less effective
Draw a sucessful supply side policies
PPF and Normal
