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Supply Side Policies
Objectives of this module:
To understand what is meant by ‘supply side policies’To appreciate how supply side policies workTo be able to give 5 examples of supply side policiesTo understand the limitations of supply side policies
Supply Side Policies
Inflation
Unemployment
GrowthImports Exports
ReduceBudgetDeficit Interest rates
Exchange ratesPrinting money (quantitative easing)
Government spendingTaxation
Helping free markets to work more efficiently
Supply side policies aim to:
Increase aggregate supply by de-regulating markets and helping firms become more efficient.
Increase aggregate supply by stimulate competition to drive down prices and improve quality.
Which may affect the real economy by:
Increasing growth and living standardsIncreasing employmentIncreasing exportsReducing importsReducing inflation
Output
Price level
AD
P1
Q1
AS
P2
Q2
AS1
Supply Side Policies aim to:
Move the aggregate supply curve to the right
5 Supply Side Policies
1. Education and training
Improve education and training so we have a well educated, productive and flexible workforce.
Evaluation
These policies are expensive and very slow to work
5 Supply Side Policies
2. Reduce laws and regulations faced by business (red tape)
Recruitment, health and safety, hiring and firing, minimum wage regulations, working hours, maternity rights……
Evaluation
These policies may lead to the exploitation of workers
5 Supply Side Policies
3. Reduce welfare payments
Reduce unemployment benefits
Make it more worthwhile for unemployed to look for work
Take steps to stop the ‘poverty trap’
Evaluation
These policies will only work if jobs are available
5 Supply Side Policies
5. Privatisation and deregulation
Private sector firms can be more efficient than public sector organisations.
Evaluation
There’s not much left to privatise. Health and education?
Review:
Supply side policies aim to increase AS in an economy
In theory they can increase growth without increasing inflation
There are many examples of supply side policies
They are often very slow to work, not very effective, they can be expensive and are often seen as unfair as they benefit high earners at the expense of the less well off.
Multiple choice questions:
Which of the following is not a supply side policy?
a) Cutting job seekers allowance
b) Expanding university courses in technology
c) Lowering interest rates
d) Allowing private firms to run prisons
Find the answer to this question at: www.istudypacks.com/supply-side
Multiple choice questions:
Unlike demand-side economics, supply-side economics:
a) advocates reduced government involvement in business
b) advocates increased government involvement in business
c) try to increase consumer purchasing power
d) urges higher taxes to reduce the budget deficit
Find the answer to this question at: www.istudypacks.com/supply-side
Essay Question:
Discuss the importance of supply side policies in improving the performance of the UK economy.
Find a model answer to this question at: www.istudypacks.com/supply-side
