4.2.5.2 Supply Side Policies: Impact of Supply Side Policies - Unemployment reduction, Inflation, BoP

reduced unemployment and inflation, improved BofP

Impact of SSPs

make labour market more efficient and flexible

How do SSPs reduce unemployment?

training/education reduce structural unemployment from skill mismatches, less income tax incentivises work, reforming welfare benefits encourage job seeking

Application for SSPs reducing unemployment

NRU falls and economy can sustain higher levels of employment without generating inflation

Result of SSPs reducing unemployment

allows non-inflationary economic growth(LRAS) by reducing cost-push inflationary

How do SSPs reduce inflation

more efficiency lower firms’ costs, reducing the price level in long run

Application for SSPs reducing inflation

enhances international competitiveness => makes exports more competitive and imports less attractive=>boosts net exports

How do SSPs improve BofP

training, investment in tech., deregulation lets firms be more efficient

Application for SSPs improving BofP

improved BofP, particularly in trade

Result of SSPs improving BofP

long, no trade-off, vertical

In the ___ run, there is __ _____ ___ between inflation and unemployment — the Phillips Curve is ________

natural rate of unemployment(NRU)

represents the lowest level the economy can sustain without accelerating inflation.

efficient, LRPC, reducing

The NRU isn’t fixed. If we make the labour market more _______, we can shift the ____ left, _______ the NRU.

equilibrium(no cyclical unemployment) due to frictional, structural, and voluntary factors

The NRU exists when the labour market is in:

LRPC, structural, voluntary

We can reduce the NRU — and therefore shift the ____ left — by tackling ________ and ________ unemployment.

training/education, labour mobility improvement, benefit reform

how can we tackle structural and voluntary unemployment?

relocation grants, job-matching platforms(e.g. Indeed, LinkedIn), reduce geographical unemployment=> help workers access jobs—better transport

Labour Mobility Improvement include

increase incentives to work=> limit benefit duration to encourages labour force participation

benefits reform include