Supply-Side Policies - DP IB Economics: HL

Flashcards covering key definitions and concepts related to Supply-Side Policies in IB Economics: HL, including interventionist and market-based policies, their goals, effects, and evaluations.

Supply-side policies

Policies that aim to shift the long-run aggregate supply (LRAS) curve to the right.

Interventionist supply-side policies

Policies requiring government intervention to increase the full employment level of output, primarily to correct market failures.

Market-based supply-side policies

Policies designed to remove obstructions in the free market that hinder improvements to the long-run potential of an economy.

Economic growth (as a goal of SSP)

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

Disinflation (as an effect of SSP)

A greater supply in the economy results in reductions in the prices of goods/services.

Unemployment (as an effect of SSP)

A fall in unemployment as lower wage bills allow firms to recruit more workers.

Net external demand (as an effect of SSP)

An increase due to lower prices of goods/services making exports more attractive to foreigners.

Redistribution of income (as an effect of SSP)

The worsening of income distribution, often due to falling wages and reduced government tax revenue.

Reducing income/corporation tax rates

A market-based policy that incentivises workers to work harder and provides firms with funds for investment.

National Minimum Wage (NMW)

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

Deregulation

A market-based policy that decreases costs of production for firms by removing regulations, potentially leading to greater supply.

Privatisation

A market-based policy where state-owned firms are transferred to private ownership, encouraging competition and increasing aggregate supply.

Anti-monopoly regulation

A market-based policy that helps to increase competition and leads to a more efficient allocation of resources.

Decreasing trade union power

A market-based policy to reduce labour costs by allowing wages to be decreased.

Education and training (as an interventionist policy)

Increasing government spending to raise the quality of the workforce, resulting in productivity improvements.

Healthcare (as an interventionist policy)

Increasing government spending to improve human capital and productivity.

Research and development (as an interventionist policy)

Increased government spending on innovation to create new industries, jobs, and long-term economic growth.

Provision of infrastructure (as an interventionist policy)

Increased government spending on infrastructure to facilitate movement of people and goods, decreasing costs of production and increasing supply.

Industrial policies

Direct and targeted government support, often in the form of subsidies, to specific firms or industries to decrease costs and increase supply.

Long-run aggregate supply (LRAS)

The total capacity of an economy to produce goods and services when all resources are fully employed; increased by successful supply-side policies.

Demand-side effects of supply-side policies

Government spending on long-term infrastructure projects that also boosts aggregate demand in the short term.

Supply-side effects of fiscal policies

Fiscal policies (e.g., education subsidies) that improve the productive potential of an economy in the long term, despite being short-term annual expenditures.