| -What does Supply-Side Policies aim for? | -This is to Expand Production Potential [Long Run AS] of the Economy, or Increase the Trend Rate of Growth
-The Economy being able to pump more Goods out, while still having Demand for such
-Government must try to create Growth via allowing the Market to do so. Not by Intervening Directly |
| What would Supply Side Policies involve? | -Structural Changes to the Economy, allowing Individual Parts work Efficiently and Productively
-Eg, helping Markets more Efficient, or Creating Incentives for Firms/Individuals to be more Entrepreneurial |
| What are
1. Free Market Supply -Side Policies
2. Interventionist Supply side Policies | 1. Increase Efficiency by getting rid of things that Disrupt the Free Market. Tax Cuts, Privatisation, Deregulation and Labour Market Flexibility
2. Correcting Market Failure. Through Expenditure on Education, Subsidies for R&D, Infrastructure Improvements and Industrial Policy |
| Where can you see some Supply Side Policies in the Product Market? | -Incentives for Firms to Invest: Tax Breaks if they Invest Profits back into the Firm instead of Dividends
-Trade Liberalisation: Remove Trade Barriers and allow flow of Goods and Capital to Flow Freely
-Encourage Competition. This can require Deregulation [Efficiency in Market] Privatisation [Effective if Nationalised Industries are Inefficient] Contract Services out [Private Firms Cary out Government Services] or Support for New and Small Firms |
| Where can Supply Side Policies be seen in the Capital Market? | -Deregulation of Financial Markets [1986 ‘Big Bang’] got rid of a load of ‘Restrictive Practices’ that made British Financial Markets Inefficient |
| Where can Supply Side Policies be seen in the Labour Market | -Reducing Unemployment Benefits: People find Incentives to get Jobs. Also Information on Availability of Jobs
-Reduce [Reform] Income Tax. Create Incentives for People to work more
-Better Education & Training, giving more People Qualifications, Productivity and Greater Occupational Mobility
-Labour Market Flexibility, making it easier for Firms to Remove Workers
-Less Rules on Firms, encouraging more Workers and less Costs |
| How can both Demand and Supply Side be used Together? Use Unemployment as an Example | -Loose Fiscal Policy boosting AD can Reduce Unemployment. But this can do Naught to the NRU [Natural Rate of Unemployment] so when the Policy ends, Unemployment may return back to its ‘Pre-Boost Equilibrium’
-So a Supply Side may be used to Reduce the NRU - make it Long lasting. This can be done via Tax Breaks [Firms Invest] & Increased Incentive to Worker
-This can hopefully mean the NRU goes Down as well as Unemployment |
| What are the Benefits of a Supply-Side Policy? | -Increasing the Trend Growth Rate allows Governments to Achieve all 4 Macroeconomic Objectives with little Clashes |
| Why are Supply Side not the Best Solution? | -Takes Time to see the Effects of Supply Side Policy, so Economy can’t be Fixed Quickly,
-Unintended Consequences. Deregulation of Financial Markets led to 2008
-Can be Unpopular [Benefit Cuts makes the Poorest more Vulnerable] and Inequitable [Flexibility in Labour Market reduces Job Security |
