supply side policies

Question 1

definition

Answer 1

Supply Side Policies are government attempts to increase productivity and shift Aggregate Supply (AS) to the right.

Question 2

benefits

Answer 2

1. By making the economy more efficient supply side policies will help reduce cost push inflation.
2. reduce structural, frictional and real wage unemployment
3. Supply side policies will increase the sustainable rate of economic growth by increasing AS.
4. Improved trade and Balance of Payments. By making firms more productive and competitive they will be able to export more.

Question 3

types

Answer 3

Reducing Income Taxes.- It is argued that lower taxes (income and corporation) increase the incentives for people to work harder, leading to more output.
Increased education and training
Better education can improve labour productivity and increase AS. Often there is under-provision of education in a free market, leading to market failure. Therefore the govt may need to subsidise suitable education and training schemes.
Privatisation. This involves selling state owned assets to the private sector. It is argued that the private sector is more efficient in running business because they have a profit motive to reduce costs and develop better services

Question 4

diagram

Answer 4

lras and ad shift right