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What ares supply side policies?
Policies designed to increase the productive capacity of the economy.
Shifting LRAS to the right.If successful all 4 main macro objectives will improve.
Whats the difference in the interventionist and market based supply side policies?
INTERVENTIONIST : Promote role of government to boost LRAS and fix market failure
MARKET BASED : Reduce role of government from operation of markets which will in turn boost efficiency/productivity/competition boosting Lras
What are some interventionist supply side policies?
Government spending on education/training
Government spending on infrastructure (easier and cheaper to access raw material/sell goods and services)improve productive efficiency
Subsidies to firms to promote investment(productive efficiency)
What are areas of market based supply side policies?
Tax reform
Labour market reform
Competition policy
What tax reform simply side polices can boost LRAS?
Lower income tax - incentivize people to join workforce/work harder (boost Q2)
Lower corporation tax - more profits for investment (boost Q2CELL + productive efficiency)
What labour market reform can boost lead?
Reduce benefits (strong incentives for inactive to find work) Q2L
Reduce min wages and trade union power (lower LR costs of production and boost productive efficiency)
How can competition policy boost lras?
Privatization
Deregulation
Trade liberalization
If this happens in an economy firm will decrease LR costs of production to be more competitive WHICH IMPROVE PRODUCTIVE EFFICIENCY
What are cons of supply side policies?
No guarantee of success (lower tax will lead to more workers,working harder or that competition policy will lead to more competition)
Costly policies (wasteful spending) how is it funded (debt?)
Time lags (spending on education take long to increase productivity)
Less better off (lower income earners will struggle with less benefits,workers won’t benefits under deregulation)
Market based SSP can lead to less safe and regulated workplace,environment,health and safety rules)
Size of output gap - supply side policies are only useful in boosting growth IF ECONOMY IS IN BOOM NOT RECESSION to keep up with growing demand levels ySSP need to be targeted towards issue (competition,labour)
