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Transcript of Supply-Side Policies
Education and training
The position of the AS curve depends primarily on the quantity of factor inputs available in the economy, and on the efficiency of those factors.
Supply side policies are those that improve the supply side of the economy. In other words, they are government policies that increase the productive capacity output of the economy.
Place these policies on the chart below
a) In what way are these supply side policies?
b) Using an AD/AS diagram, discuss the likely effect of these policies on the UK economy
Limitations of Supply Side policies
They can be expensive for the government
By the end of the lesson you will:
1. Be able to analyse different supply-side policies
2. Evaluate the effectiveness of these policies
The PPF is shifted outwards and AS is shifted right.
SUPPLY SIDE POLICIES therefore focus on affecting these determinants of Aggregate Supply in order to shift the AS curve to the right.
Flexibility of labour markets
Lower unemployment benefits
Promotion of competition
Increase competition policy
In pairs, how many supply side policies can you think of?
Reduce the power of trade unions
Encourage business start-ups
Grants or tax credits for R & D
They are often very long-term approaches - Time Lag
The effectiveness depends on the state of the economy at the time
Supply-side policies can also affect AD at the same time - conflict with Fiscal Policy
Find a recent article relating to real life supply-side policies and write a short essay on discussing the effectiveness of such policies
Possible negative effects on income distribution
Key concepts to focus on are incentives, enterprise, technology, mobility, flexibility and efficiency.
•Improve incentives and invest in people’s skills
•Increase labour and capital productivity
•Increase the occupational and geographical mobility of labour
•Increase capital investment and research and development spending by firms
•Promoting more competition and stimulate a faster pace of invention and innovation
•Provide a platform for sustained non-inflationary growth of an economy
•Encourage the start-up and expansion of new businesses / enterprises
Invest in transport - HS2
Loan guarantees & grants for SME's and start-ups
Immigration policy - 2004
Read article on Finland’s propose reform
A radical approach
Impact on the MEPO's?
Three elements of supply-side macroeconomic theory:
Effect of cuts in employers' national insurance and income tax
Information failure - resulting in government failure