HL IB Economics 3.7 Supply-Side Policies

Flashcards covering key concepts, definitions, and examples related to supply-side policies in economics.

Supply-side policies

Policies aimed at shifting the long-run aggregate supply (LRAS) to generate economic growth.

Interventionist supply-side policies

Policies that require government intervention to increase full employment level of output, often used to correct market failures.

Market-based supply-side policies

Policies that aim to remove obstructions in the free market that hinder improvements to long-run potential.

Economic growth

An increase in potential national output that leads to higher real gross domestic product (rGDP).

Inflation

A greater supply in the economy which results in lower prices of goods/services, leading to disinflation.

Unemployment

This should fall as lower wage bills allow firms to recruit more workers due to increased supply.

Net external demand

Higher supply often leads to lower goods/services prices, making exports more competitive.

Income redistribution

Can worsen with supply-side policies as wages fall and government tax revenue decreases.

Deregulation

The reduction or elimination of government rules controlling market activities to decrease costs of production.

Privatization

The transfer of ownership from the public sector to private entities, often increasing market competition.

National Minimum Wage (NMW)

A legally imposed wage level that employers must pay their workers, set above the market rate.

Government spending on education and training

Increases workforce quality and productivity, leading to cost reductions for businesses.

Research and development

Increased government funding that boosts job creation and long-term economic growth through innovation.

Infrastructure provision

Government spending that facilitates movement of people and goods, subsequently increasing aggregate supply.

Industrial policies

Direct and targeted government support to firms or industries, which can lower production costs.

Vested interests

Special interests can hinder effective outcomes in privatization processes.

Time lags

Delays between policy expenditure and observable economic benefits, often affecting implementation.

Environmental impact

Negative externalities associated with large infrastructure projects, such as ecosystem damage.