2:5:2 Macroeconomic Objectives And Policies - Supply Side Policies Flashcards Preview

Economics - Macro > 2:5:2 Macroeconomic Objectives And Policies - Supply Side Policies > Flashcards

Flashcards in 2:5:2 Macroeconomic Objectives And Policies - Supply Side Policies Deck (36)
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1
Q

What is meant by the term Supply Side Policies?

A

Are action taken by the government intended to increase the amount that firms are willing to supply at any given price level.

2
Q

What is the objective of Supply Side Policies?

A
  • Improve the supply of the economy (productivity, availability of resources, removing regulations and just reducing cost in general) - Seek to shift AS to the right
3
Q

Which curve do Supply Side Policies effect?

A

Aggregate Supply Curve (AS)

4
Q

What are the 2 approaches to supply side policies?

A
  • Effectiveness of markets ( allowing more flexibility as determined by supply and demand) - Interventionist Approach (Governments getting involved in markets to reduce market deficiencies)
5
Q

Why are Market Based Supply Side Policies effective?

A
  • Increasing price Flexibility and Signalling In the Market (if Price is not used to allocate resources effectively, there will be surpluses and deficits in the market) - Increasing Competition (Increasing competitions means firms have to cut costs or become more innovative in order to survive) - Improving Incentives (Incentives function by giving people higher rewards for what they do and therefore motivating them to work harder)
6
Q

Why are Interventionist methods of Supply Side Policy Effective?

A
  • Improving Education and Training ( Increase Spending in Education and using subsidies to incentivise firms to take on apprentices, however it’s expensive and time lags) - Improving health and introducing performance related pay (Long term policies that encourage firms to produce more at any given price level) - Implementing Regulations - Improving Infrastructure
7
Q

What is meant by the term infrastructure?

A

The physical and organisational framework need for an economy to operate efficiently

8
Q

Disadvantages of Supply Side Policies.

A
  • If there is demand deficient unemployment then the supply side policies could have no affect at all - Time lags, Policies such as education can take many year to have an effect on production costs - No opportunity for increased competition
9
Q

In the short run how does Investment education affect production costs?

A

Because there are fewer people in the labour market

10
Q

How can Supply Side Policies cause Poverty and Inequality?

A
  • By cutting out of work benefits such as Jobseekers Allowance when there are no jobs available or the persons skill set doesn’t match the job requirements, then there I wider income distribution and no effect on the labour market - Cuts In the National Minimum Wage - Reducing the power of trade unions
11
Q

What is meant by a trade union?

A

Organisations of workers that exist to promote the welfare of their members

12
Q

What side effects do Supply Side Policies have on the Demand Side?e

A
  • Cutting taxes has fiscal policy implications - Cutting Minimum real wages & Reducing the power of trade unions affects low income earners disproportionality
13
Q

What effect does effective Supply Side Policies have on Inflation and Economic Growth?

A

Lowers inflation Higher rates of economic growth

14
Q

Demand Side Policies shift the [….] curve

A

Aggregate Demand (AD) curve

15
Q

Supply Side Policies are used to increase the […..] curve

A

Aggregate Supply (AS)

16
Q

What is the aim of Supply Side Policies on an economy?

A

Influence individuals and firms to become more productive, cutting costs, improving incentives and increasing competitiveness, thereby being able to produce more at lower prices

17
Q

What is meant by the term Free-Market Supply Side Policies?

A

Policies to increase competitiveness and competition

18
Q

What is meant by the term Interventionist Supply Side Policies?

A

Government intervention to overcome market failure

19
Q

How does Supply Side Policies Lower Inflation?

A
  • Shifting AS level to the right will cause a lower price level - By making the economy more efficient, Supply-Side Policies will help reduce cost push inflation
20
Q

How do Supply-Side Policies cause Lower Unemployment?

A
  • Help reduce structural, frictional and real wage unemployment.
21
Q

How does Supply-Side Policies improve economic growth?

A
  • Increase Economic Growth By Increasing LRAS - Enables a higher rate of economic growth without causing inflation
22
Q

How do Supply-Side Policies improve trade and the Balance of Payments?

A
  • By making firms more productive and competitive, they will be able to export more.
23
Q

Examples of Free Market Supply-Side Policies.

A
  • Privatisation - Deregulation - Income Tax Cuts - Remove Red Tape - Flexible Labour Markets - Free-Trade agreements - Reduce Welfare Benefits
24
Q

Free market Supply-Side Policies - Privatisation

A
  • Sell State owned assets to the private sector - Argued that the private sector is more efficient as they have a profit motive to reduce costs and develop better services
25
Q

Free market Supply-Side Policies - Deregulation

A
  • Allow new firms to enter a market, will make the market more competitive - Open monopolies to competition - Competition tends to lower prices and better quality of goods/services
26
Q

Free market Supply-Side Policies - Income Tax Cuts

A
  • Greater incentive to work longer hours - Leading to an increase in the labour supply and more output - Cut In corporation tax gives firms more Retained profits to use for investment
27
Q

Free market Supply-Side Policies - Remove Red Tape

A
  • Make it easier to build new factories and housing - Will Reduce Firms Costs and encouraging investment
28
Q

What is meant by Red Tape?

A
  • Excessive regulation that hinders an action
29
Q

Free market Supply-Side Policies - Flexible Labour Markets

A
  • Reduce power of trade unions, minimum wages and regulations. - Enable zero hour contracts - Cheaper for firms to hire and fire workers, and encourages firms to take on workers in the first place
30
Q

Free market Supply-Side Policies - Free-Trade Agreements

A
  • Reduce tariffs and other barriers to trade - Will Increase Trade and provide Firms with an incentive to export
31
Q

Free market Supply-Side Policies - Reduce Welfare Payments

A
  • Increase incentive to get a job and to work longer hours
32
Q

Examples of Interventionist Supply-Side Policies.

A
  • Public Sector Investment - Education - Vocational Training - Housing Supply - Health Spending
33
Q

Interventionist Supply-Side Policies - Public Sector Investment

A
  • Invest in infrastructure, improve transport and reduce cost of transport for firms - With transport there is often a market failure (congestion and pollution) Government Spending on improving transport overcomes this market failure
34
Q

Interventionist Supply-Side Policies - Education

A
  • Increase funding to schools and universities. - Improve Labour Productivity and Increase AS - Often there is under provision of labour in the free market, leading to market failure. Therefore the government may need to subsidise education and training schemes
35
Q

Diagram showing the effect of an increase in Aggregate Supply.

A
36
Q

Diagram of the Phillips Curve.

A