Macroeconomics ?+3

Front 1

What is the difference between fiscal and monetary policy and supply policy?

Back 1

Fiscal and monetary policy are aimed at creating shirt run economic stability. Supply side policies are aimed at increasing the long term productive capacity of the economy.

Front 2

What are the 3 common types of supply side policies?

Back 2

1) Improve the quantity of the factors of production (e.g. more capital/chickens).

2) Improve the quality (e.g. productivity) of the factors of production.

3) Improve the efficiency of product and factor markets (e.g. increased competition).

Front 3

How is increased education and training a supply side policy?

Back 3

Increasing the availability of training before workers will lead to an increase in human capital. This means that there will be an increase in the productive capacity of the economy because the increase in the quality of labour force means that workers will be more productive which leads to an increase in output.

Front 4

How is infrastructure a supply side policy?

Back 4

More and better roads will reduce transport costs and times. This increases the quality and quantity of capital in the economy. This leads to increased efficiency for firms. It can also lead to increases in the geographic mobility of labour. This means the productive capacity of the economy will increase, leading to an increase in output.

Front 5

What is one way the government might increase the efficiency of markets?

Back 5

Reducing Monopoly power: Competition policy leads to a decrease in monopoly power. Monopoly power leads to a number of supply side disadvantages (e.g. higher prices, less R&D). Governments breaking up monopolies or refusing to allow mergers will reduce monopoly power and increase market efficiency. This leads to an increase in the economy's productive capacity.

Front 6

What other supply side policies are there?

Back 6

1) Reducing benefits (quantity of labour)

2) Reducing taxes (quantity of labour, quantity/quality of capital)

3) Labour market flexibility (quantity of labour)

4) Immigration (quantity/quality of labour)

5) Privatisation (more efficient use of factors of production)

6) Deregulation (lower barriers to entry, more efficient markets)

7) Reducing trade union power (efficient use of factors of production, increased quantity of labour)

8) R&D incentives (quality/quantity of capital

Front 7

Supply side policies will...

Back 7

Increase economic growth, decrease unemployment (more workers required to produce greater output), reduces inflation (lower costs of production), improvement in the BoP (improved price competitiveness.)

This is good as it helps solve policy conflicts.

Front 8

What are the problems with supply side policies?

Back 8

1) Time lags: projects can take a long time to implement (e.g. building new motorways).

2) Can be very expensive to introduce (e.g. expanding uni. education). There is always an opportunity cost.

3) No guarantee policies will bring about the intended improvements in productive capacity (e.g. reducing corporation tax may not cause firms to reduce investment).

4) If, due to increased government spending, AD grows to quickly, wage and price inflation may require deflationary policies to correct, harming a country's productive potential.

5) Opposition and resistance (E.g. trade unions, the UN).

6) Equity issues (e.g. cutting benefits increases inequality).

Front 9

How can supply side policies resolve conflicts between objectives?

Back 9

It lowers unemployment and inflation, whilst increasing economic growth and BoP, all good outcomes

Front 10

How can supply side policies resolve conflicts between objectives?

Back 10

It lowers unemployment and inflation, whilst increasing economic growth and BoP, all good outcomes