SSP

• What is a supply side policy?

  A supply-side policy is a government policy that aims to increase the quantity and quality of resources to increase an economy's productive capacity. The goal is to increase the amount of goods and services that firms are willing to supply at a given price level.
• What are the two types of supply-side policies?

  1. Market base - manipulate the market mechanism e.g. encouraging incentives to work
  2. Interventionist - used by government to overcome market failure
• What are the three main examples of SSPs?

  1. Labour market reforms
  2. Government Investment
  3. Policies affecting firms
• Labour market reforms


  1. Education & training
  2. Reforms of the tax ad benefit system
  3. Improved labour market flexibility
  4. Immigration policies
• Government Interventionist

  1. Investment in infrastructure
  2. Research and development
• Policies affecting firms

  1. Deregulation
  2. Privatisation
  3. Subsidies
  4. Competition policy
  5. Reduction in corporation tax
• Disadvantage of SSPs

  1. Only effective if AD is constant and sufficient enough to match the increased productive capacity.
  2. Are not affective if there is mass unemployment - less effective in addressing cyclical unemployment, which arises from insufficient demand.
  3. Time lag
  4. Potential for increased inequality e.g. from deregulation
  5. High costs - e.g. funding education & infrastructure
• Explain privisation


  More economically efficient because of profit motive.

  Competition between firms drive up, therefore, productive & allocative efficiencies, production costs decrease, which can be passed onto consumers, meaning that there will be less inflationary pressures.

  HOWEVER, risk of market failure if firms don’t consider externalities associated with their market, +ve or -ve.
• Explain R&D

  • Greater innovation and technological advancements
  • Greater efficiency for firms
  • Reduces cost of production and increases output
  • Increases international competitiveness
• Explain reforms of tax and benefit system

  • Reduces direct tax on income, including income tax and national insurance
  • Incentivise people to work, as reward for work will be greater
  • Couples with reducing benefits, will create an increase in labour force and therefore productive potential of economy
• Explain improved labour flexibility

  • Supply of labour can change to meet changing demand for labour
  • Improving occupational and geographical mobility will allow this
  • Limiting trade union intervention so that demand can adjust to changing market needs
• Explain immigration control

  • Fill skill gaps in domestic labour amkret
  • Create extra spending and tax revenue, creating multiplier effect
  • Multiplier paragraph
  • Also benefit of introducing new knowledge and ideas, creating efficiency
• Explain deregulation


  • Removal of regulations & rules
  • Allows greater freedom for firms to make business decision
  • Cut costs of having to adhere to these regulations
  • Allows smaller firms to enter market
• Explain subsidies


  • Lower costs
  • Greater efficiency
  • Greater output
  • Social benefits of society rise, creating positive multiplier effect
• Explain Competition policy


  • CMA (comp & market authority), competition is encouraged, as well as limiting power of monopolies and preventing creation of monopolies
  • Greater incentive to be efficient
  • Reduces costs
  • Output increased
• Explain investment in infrastructure

  • Investing in transport links, communication methods and healthcare, labour market can be more flexible
  • Supply chains increased and more efficient
  • Reduces costs
  • Greater efficiency
• Explain investment in education & training

  • Labour force more productive
  • They will be able to improve their occupational mobility
  • Cost of production to fall
  • Output rises faster than costs
  • Less wage inflation in markets because there is not an excess of demand for workers
• How can increased spending on infrastructure influence economic growth?

  It improves labor mobility and productivity
• What effect does improved infrastructure have on unemployment?

  It decreases unemployment
• What are the demand-side benefits of increasing spending on infrastructure?

  Increased consumption due to higher incomes
• How does improved infrastructure affect consumer spending?

  It allows more people to travel to shops
• What is a risk associated with increased spending on infrastructure?

  Risk of crowding out in the short-run
• What is crowding out?

  Government spending increases demand for resources
• How does crowding out affect private-sector firms?

  It increases costs and disincentivizes investment
• What is an example of increased spending on infrastructure by the government?

  UK's £106bn HS2 railway project
• How does reducing corporation tax improve economic growth?

  Firms retain more profits for expansion
• What is the short-run effect of reducing corporation tax?

  Increased entrepreneurship and SRAS
• What is the long-run effect of reducing corporation tax?

  Increased finance for investments
• What is a demand-side benefit of reducing corporation tax?

  Increased investments raise AD and real GDP
• What is a potential drawback of reducing corporation tax?

  Opportunity costs for government revenue
• How does reducing minimum wage affect labor supply?

  It increases demand for labor
• What is real wage unemployment?

  Excess supply of labor at minimum wage
• What is a significant concern with reducing minimum wage?

  Decreased disposable incomes reduce consumption
• What is the current minimum wage for adults as of April 2023?

  £10.42
• What will the minimum wage for adults be in April 2024?

  £11.44
• What is deregulation?

  Removing regulations to lower market entry barriers
• How does deregulation influence production costs?

  It lowers production costs for firms
• What is privatisation?

  Transfer of public-sector firm to private sector
• How does privatisation influence company efficiency?

  Private investors pressurize firms to profit maximize
• How can increased spending on education influence economic growth?

  It increases the number of qualified workers