Supply side policies

• What are supply side policies aimed at increasing?

  The potential productive capacity of the economy
• What is the primary focus of supply side policies?

  Shifting the Long Run Aggregate Supply (LRAS) outwards
• What are the two types of supply side policies?

  Interventionist and market-based policies
• How do interventionist policies operate?

  They intervene with direct policies to increase potential output
• What is the goal of market-based supply side policies?

  To allow competitive markets to operate freely
• What is one effect of increased competition in the market?

  It increases efficiency and productivity
• What are the methods to encourage competition in the market?

  1. Privatization

  • Selling government-owned enterprises
  • Increases efficiency and productivity

  1. Deregulation

  • Removes barriers to competition

  1. Trade liberalization

  • Lowers tariffs to increase competition

  1. Labor market reform

  • Adjusts wages and benefits to enhance competitiveness

  1. Incentivizing the economy

  • Reduces income tax to motivate workers
• What is privatization?


  The selling of government-owned enterprises to the private sector
• What was a significant outcome of Margaret Thatcher's privatization in the 1980s?


  The UK government earned 67 billion pounds from privatization
• What were the primary goals of privatization during the 1980s in the UK?


  To increase performance, reduce fiscal burden, and increase competition
• What is deregulation?


  Removing government regulations that distort free market outcomes
• What are some drawbacks of deregulation?

  It can lead to reduced consumer and environmental protection
• What is trade liberalization?

  Lowering tariffs to increase competition for domestic firms
• How does labor market reform affect firms?

  It decreases minimum wage, increasing profits for firms
• What is one way to incentivize the economy?


  Reducing income tax to increase the incentive to work
• What are the key interventionist policies to increase productive capacity?

  1. Invest in human capital

  • Education and training
  • Healthcare

  1. Invest in new technology

  • Research and development

  1. Invest in infrastructure

  • Airports, roads

  1. Invest in business support schemes

  • Grants and subsidies for small businesses
• How does investing in human capital affect labor productivity?

  It increases labor productivity through education and training
• What is the impact of investing in new technology?

  It increases labor productivity and potential output
• Why is investing in infrastructure important?

  It facilitates movement and reduces costs for firms
• What is the purpose of investing in business support schemes?


  To support infant industries and small businesses
• How does low inflation growth relate to productive potential output?

  It allows room for Aggregate Demand (AD) to increase without inflationary pressure
• What is the budget impact of interventionist policies?


  They cost money, while market-based policies may reduce government revenue
• How do equity considerations relate to healthcare and education investments?

  Investing in these areas increases equity in society
• What is a potential negative effect of deregulation on the environment?


  It could lead to environmental degradation
• What is the role of the invisible hand in market-based policies?

  It guides efficient allocation of resources
• What is a key argument for interventionist policies?

  Market failure exists, and resources aren't always allocated efficiently
• What is a consequence of high taxes in interventionist policies?

  They can discourage investment