Evaluation of supply side policies

Using RWEs, evaluate whether supply side policies are an effective way of increasing economic growth. (15 marks)

Supply side policies is…

Economic growth is…

RWE: uk govt subsidises education to increase quality of labour (INT). Thatcher privatised numerous industries in the UK in the 1980’s - 90s to increase efficiency (M-B)

LRAS diagram

Ability to use:

• INT - depends on govt credit rating (problem in LEDCs). Impossible to use if debt is too high. (Not affordable).

• M-B - politically unpopular therefore difficult to implement

Speed of impact:

• INT- slow (at increasing Yf) - HS2 still incomplete (UK)

• M-B - slow (at increasing Yf) - coal miners cannot find efficient jobs straight away.

Size of shift:

• INT - govt chooses what to spend on. In theory, they can target the spending exactly where it would have biggest impact→ big increasing Yf. Healthcare spending (vaccines) → people could return to work during pandemic. Ensures equitable and sustainable growth.

• People choosing not to use the sources. Quality of product/service may be low (inefficiency) - limited increasing Yf.

• M-B - firms choose what to spend on in competitive markets. They need to make profit → increases efficiency → big increasing Yf

• If people can’t find work, they can’t afford to live + limited increase at Yf. (Inequitable growth)

Conclusion: interventionist better as works in short term and long term and are more equitable. Therefore depends on whether governmental afford them.