Ecnomics 3.7 Supply side polices

• What do supply-side policies aim to improve?


  Long run productive potential of the economy
• Why are supply-side policies vital for an economy?

  To produce goods and services in the future
• What are some forms of supply-side policies?

  • Investment in education and training
  • Lower direct taxes
  • Lower taxes on business profits
  • Trade union reform
  • Privatisation/deregulation
• How does investment in education and training benefit the workforce?

  It improves skills and qualifications of workers
• What is human capital?

  The value of a worker's skills and qualifications
• How does a better educated workforce affect the economy?

  It increases the productive capacity of the economy
• What are the societal benefits of improving human capital?

  It leads to greater employment and higher living standards
• Who typically pays for investments in education and training?

  Taxpayers often pay for this
• What are direct taxes?

  Taxes placed on individuals or firms
• What is a common example of direct taxes?

  Income tax and corporation tax
• How does reducing income tax affect individuals?

  It provides an incentive to work longer hours
• What effect does reducing corporation tax have on firms?

  It allows firms to achieve higher profits
• What is the role of trade unions?

  To negotiate on behalf of members for better conditions
• How does government reform of trade unions affect wages?

  It makes it easier for firms to pay lower wages
• How does the UK compare in terms of strikes with competitors?

  It has a comparatively low level of strikes
• What is privatisation?

  When a public sector organisation joins the private sector
• What are the potential benefits of privatisation?

  Greater efficiency and innovation in firms
• How does deregulation affect market competition?

  It opens up markets to new competition
• What is a potential downside of reducing the public sector?

  Private firms may suffer if reliant on public sector
• How do supply-side policies affect employment and economic growth?

  They can increase employment and economic growth
• What is the impact of improved infrastructure on costs?

  It lowers costs for businesses
• How do lower taxes influence investment?

  They boost profits and therefore investment
• How do supply-side policies contribute to price stability?

  Increased capacity leads to lower production costs
• What is the relationship between supply-side policies and inflation?

  They can reduce inflationary pressure
• How do supply-side policies improve the balance of payments?

  They increase competitiveness and exports
• What is a potential drawback of implementing supply-side policies?

  They take time to implement
• What is the budgeted cost of HS2?

  £55.7bn
• How can supply-side policies crowd out the private sector?

  Public spending can limit private sector projects
• What are the overall effects of supply-side policies?

  • Create employment
  • Reduce inflationary pressure
  • Lead to economic growth
  • Improve the balance of payments
• How do supply-side policies shift demand and supply in the economy?

  Demand shifts right short-term, supply long-term
• How do lower costs affect export demand?

  Lower costs increase demand for exports
• What is the impact of higher quality products on exports?

  Higher quality increases demand for exports
• What is the long-term effect of improved human capital on unemployment?

  It reduces occupational unemployment
• How do supply-side policies affect small firms?

  They help small firms grow into large firms
• What is the relationship between supply-side policies and living standards?

  They lead to higher living standards
• How do supply-side policies impact the economy's productive capacity?

  They increase the economy's productive capacity