economics

• Supply Side Policies


  Government actions designed to increase the productivity and efficiency in the economy, thereby boosting its potential output
• Supply side policies target the production side of the economy rather than the demand side
• Focus of supply side policies


  • Improving the flexibility and efficiency of labour markets
  • Improving competition
  • Improving market efficiency
• Examples of supply side policies

  • Education and Training
  • Investment in Infrastructure
  • Deregulation and Reducing Barriers to Entry
  • Tax Incentives
• Supply side policies


  • Boost the productive capacity of the economy
  • Can lead to increased economic growth
  • Can reduce inflationary pressure
  • Can increase employment
  • Can improve trade balance
  • Take time to work
  • Benefits may be unequal
  • May have possible negative effects
• Relying solely on supply side policies may not be enough, it's important for policies to strike a balance between demand and supply for optimal economic performance
• Governments need to implement a mix of macroeconomic policies - both demand side (fiscal and monetary) and supply side policies to ensure economic stability and growth
• Price stability


  The economic situation where prices in an economy are generally not changing or are changing very slowly
• Benefits of price stability

  • Maintains the purchasing power of a nation's currency
  • Promotes certainty and predictability in the economy
  • Encourages investment
  • Contributes to economic growth
  • May impact employment levels
  • Can limit rapid changes in inflation that could otherwise have adverse effects on the balance of payments
• Ways to achieve price stability


  • Monetary policy
  • Fiscal policy
• Unexpected events such as changes in international market conditions can disrupt price stability
• Sometimes other important economic objectives (e.g., full employment or economic growth) might conflict with price stability
• Maintaining low consumer price inflation may be accompanied by rapid increases in asset prices, creating economic imbalances
• Monetary policy


  The methods used by a country's central bank to control the supply and availability of money
• Types of monetary policy

  • Expansionary monetary policy (increasing money supply or reducing interest rates)
  • Contractionary monetary policy (reducing money supply or increasing interest rates)
• Effects of monetary policy

  • Impacts investment and consumption
  • Affects currency value
  • Manages inflation
  • Impacts economic growth
  • Impacts full employment
  • Impacts balance of payments
• The impacts of monetary policy changes often take time to fully materialise
• In situations where interest rates are very low or at zero, monetary policy may not be effective in stimulating the economy
• Expansionary monetary policy may lead to excessive lending, potentially causing asset bubbles and financial instability
• Monetary policy acts alongside fiscal policy, with the latter involving alterations in government revenue and spending
• Unemployment

  The state in which people are actively looking for work but are not currently employed
• Causes of low unemployment

  • Strong economic growth
  • Technological advancements
  • Flexible labour market
  • Education and training
• Benefits of low unemployment

  • Increased standard of living
  • Fiscal benefits for government
• Potential drawbacks of low unemployment

  • Increased economic inequality
  • Potential for inflation
• Policies to reduce unemployment

  • Fiscal policy
  • Monetary policy
  • Education and training
• Governments must balance low unemployment with the potential for rising inflation (also known as the Philips Curve dilemma)
• Governments must ensure that the economic growth that leads to low unemployment is long-term and sustainable to avoid future unemployment issues
• Governments must ensure that low unemployment doesn't lead to increased economic inequality
• Market


  Mechanisms by which buyers and sellers interact to determine the price and quantity of goods and services that get traded
• Market failure


  When the free market does not efficiently allocate resources, leading to inefficient outcomes
• Types of market failure

  • Public goods
  • Externalities
  • Information asymmetry
  • Market power
• Consequences of market failure

  • Inefficiency (allocative or productive)
  • Inequality
• Government intervention methods


  • Regulation
  • Taxation and subsidies
  • Public provision
• Social efficiency


  The benefits of an action to society are greater than the costs
• Government failures can occur if state interventions fail to improve or worsen the economic situation, leading to inefficiencies or distortions
• Interventions may have unintended side-effects, like creating black markets or causing markets to become over-reliant on government support
• Political influences can affect decisions about interventions, leading to priorities that do not necessarily align with broader socio-economic goals
• Fiscal policy

  The use of government spending and taxation to influence the economy
• Fiscal policy


  • One of the main tools that governments use to manage and manipulate economic conditions
  • Stands as a counterbalance to monetary policy, which involves changing interest rates and controlling the money supply
• Types of fiscal policy

  • Expansionary fiscal policy (increasing government spending or cutting taxes)
  • Contractionary fiscal policy (decreasing government spending or raising taxes)