3.7 Supply-Side Policies (DP IB Economics: HL): Flashcards
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Define supply-side policies.
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Cards in this collection (25)
Define supply-side policies.
Supply-side policies aim to shift the long-run aggregate supply (LRAS) of an economy to the right.
What are the two categories of supply-side policy?
The two categories are interventionist and market-based supply-side policies.
Define market-based supply-side policies.
Market-based supply-side policies aim to remove obstructions in the free market that hold back improvements to long-run potential.
Define interventionist supply-side policies.
Interventionist supply-side policies require government intervention in order to increase the full employment level of output.
Reducing income tax rates increases the for workers to work harder and for firms to invest.
Reducing income tax rates increases the incentive for workers to work harder and for firms to invest.
True or False?
Reducing income tax rates is an example of an interventionist supply-side policy.
False.
Reducing income tax rates is a market-based supply-side policy, as it works by improving incentives in the free market.
How can privatisation increase aggregate supply?
Privatisation encourages new firms to enter the market and compete, which increases aggregate supply.
Define deregulation.
Deregulation is the removal of regulations, which lowers firms' costs of production and may increase supply.
A national minimum wage is a legally imposed wage level set the market rate.
A national minimum wage is a legally imposed wage level set above the market rate.
How does government spending on education act as a supply-side policy?
Spending on education raises the quality of the workforce, improving productivity and long-run aggregate supply.
True or False?
A successful supply-side policy raises real output and raises average price levels.
False.
A successful supply-side policy raises real output but lowers average price levels.
State two goals of supply-side policy.
Supply-side policy aims to generate long-term economic growth and lower average price levels, as well as creating new jobs.
Define supply-side policies.
Supply-side policies aim to increase the long-run aggregate supply of an economy.
How can building infrastructure also boost aggregate demand in the short term?
The government spending needed to build infrastructure is a component of aggregate demand, raising national output in that year.
Define human capital.
Human capital refers to the skills and productivity of a workforce, which fiscal policies such as education subsidies can improve.
The best government spending boosts aggregate demand in the short term but increases in the long term.
The best government spending boosts aggregate demand in the short term but increases long-run aggregate supply (LRAS) in the long term.
Give one advantage of market-based supply-side policies.
They improve resource allocation and place no burden on the government budget.
True or False?
Infrastructure supply-side policies deliver their full benefits immediately.
False.
They often take years to complete and only add productive potential to the economy in the long term.
Define time lags as a disadvantage of supply-side policy.
Time lags are the significant delays between expenditure on a supply-side policy and seeing its benefits.
How can education subsidies act as a supply-side fiscal policy?
Education subsidies are a short-term fiscal expenditure that improves human capital, boosting long-term productivity and output.
Interventionist policies such as improved infrastructure can raise the quality of life and improve living .
Interventionist policies such as improved infrastructure can raise the quality of life and improve living standards.
True or False?
Market-based supply-side policies place a large burden on the government budget.
False.
They rely on freeing up markets, so there is no requirement for government spending.
How can vested interests reduce the effectiveness of supply-side policies?
Privatisation may be arranged so that preferred bidders obtain an asset at a knock-down price.
Give one advantage of interventionist supply-side policies.
They provide direct support to sectors important for growth, which can reduce unemployment and increase exports.
Give one equity-related disadvantage of market-based supply-side policies.
The distribution of income can worsen as labour-market reforms and wage policies lower workers' wages.
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