Supply-side Policy Flashcards
(24 cards)
How would Supply Side policies affect the macroeconomic objective of steady growth?
- Actual and potential growth can rise.
How would Supply Side policies affect the macroeconomic objective of low unemployment?
- Increasing output = more jobs available.
How would Supply Side policies affect the macroeconomic objective of low inflation?
- AD can rise without as much inflationary pressure.
How would Supply Side policies affect the macroeconomic objective of balanced BoP?
- More price competitive goods.
How would Supply Side policies affect the macroeconomic objective of Protecting the environment?
- Invest in green infrastructure.
How would Supply Side policies affect the macroeconomic objective of equality?
- Rising income and more opportunities.
How would Supply Side policies affect the macroeconomic objective of balanced budget?
- Free market SSPs can lead to more tax revenue.
What are free market supply-side policies?
- Allows the free market to operate to eliminate imbalances.
What are interventionist supply-side policies?
- Direct government action to influence the supply side of the economy.
Examples of supply side free market policies?
- Cutting government spending and borrowing
- Lower business taxes
- Lower income tax
- Reduce red-tape
- Improve labour market flexibility
- Competition policy
- Privatisation
- Encourage international trade and investment
- Immigration policy
How will tax cuts improve incentives?
- Lowering income, corporate and capital gains taxes, provides more disposable income and greater after-tax profits.
- This therefore incentivises for more work, investment, and entrepreneurial activities.
How will deregulation improve incentives?
- Reducing govt. regulations and bureaucratic red tape, it lowers compliance costs.
- Makes it easier for firms to operate, expand, and innovate.
- Can lead more firms to enter markets to make them more competitive.
How will trade liberalisation improve incentives?
- Reducing trade barriers, such as tariffs and quotas, can stimulate international trade, can stimulate investment in exports and international trade.
How will Intellectual Property Protections improve incentives?
- Strong intellectual property rights protection encourages innovation and entrepreneurship by ensuring that creators and inventors can profit from their ideas and inventions.
What are the free market approaches to the supply-side?
- Tax cuts: on businesses and high-income earners.
- Deregulation of markets: reducing bureaucratic hurdles.
- Labour Market Flexibility: Advocates often support labour market reforms that reduce restrictions on hiring and firing.
- Privatisation: Transferring state-owned assets and services to the private sector -> injects market competition and efficiency.
- Trade Liberalisation: Reducing trade barriers, enhances competitiveness of domestic industries.
What are the supply side policies to improve competition?
- Competition policy: authorities can break up monopolies or prevent mergers that might create dominant market players.
- Deregulation: removing unnecessary regulations can lower barriers to entry for new competitors.
- Market access: policies that facilitate access to markets including licensing reforms and reduced market entry costs, can enhance competition.
- Open data and interoperability standards: can encourage competition by enabling different companies o build products or services that can seamlessly work together, promoting innovation.
What are the supply side policies which would help reform labour markets?
- Labour market deregulation -> makes it easier for employers to hire and fire, and adjust wages based on productivity.
- Reducing trade union power: Policies that limit the influence of unions, can lead to more flexible labour negotiations.
- Immigration reforms: attracts high-skilled workers can help increase a country’s productive capacity.
- Encouraging gender and diversity inclusion can expand the talent pool and improve competitiveness, harnessing a broader range of skills and perspectives.
What are the criticisms of market-based supply-side policies?
- Income inequality: tax cuts can benefit high-income earners and reductions in social safety nets can lead to a wider wealth gap.
- Reduced Social Safety Nets: can lead to reduced public services, including healthcare, education, and welfare programmes.
- Underinvestment in Public goods
- Market failures: free markets are not perfect, externalities and public goods problems may arise.
- Financial instability: deregulation and lack of oversight in financial markets can contribute to financial instability.
What are some of the interventionist supply side policies?
- Investment in public services and critical infrastructure.
- Changes to living wage to increase incentives and productivity.
- Regional policies
- Import controls to protect domestic industry.
- Exchange rate management to improve competitiveness.
- Nationalisation of key industries..
What are the criticisms of interventionist supply-side policies?
- Bureaucracy and inefficiency -> can slow down economic processes and result in the misallocation of resources.
- Crowding out Private Sector: interventions, especially those involving public ownership or control of industries, could crowd out private investment and entrepreneurship.
- Reduced incentives: high taxation and extensive regulation can reduce individuals’ and business’ incentive to work, invest, and innovate.
- Ineffective redistribution: high levels of taxation can lead to capital flight and tax evasion.
Examples of recent UK supply-side policies?
- Privatisation - Royal Mail in 2016 (Channel 4 has been proposed)
- Deregulation of the UK retail energy market
- Creation of new 8 Free Ports and Regional Enterprise Zones
- Tax free childcare: £500 every 3 months up to £2,000 for each child.
- Unemployment: kickstart scheme for long term unemployed, Apprenticeship Levy on firms.
- Reforms to the UK immigration system.
- Super-deduction tax incentive for business capital investment (125% tax allowance).
- Funding for rollout of electric vehicle charging infrastructure.
What are the primary UK supply side concerns?
- Persistent Productivity Gap
- High rates of youth unemployment
- Low trend growth rate on Real GDP
- Rise of Emerging Nations
- Low R&D
- Rising inequality/ relative poverty.
- Deep and widening regional economic divide
- Structural trade deficit
What are the UK productivity issues?
- Low rate of new capital investment in the UK.
- Banking crisis affecting lending to businesses.
- Possible slowing rates of innovation.
- Persistent skills shortages in key industries.
- Relatively low levels of market competition.
- Low AD and high spare capacity.
How effective are supply-side policies though?
- Time Lags - Many but not all policies have significant time lags in terms of effectiveness.
- Cost - may be expensive to implement.
- Policies of competing nations: our main competitors (e.g: Germany, USA, China) will also be introducing their own supply-side policies.
- If their policies are more effective, may not get anticipated gains.
