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Chap-28 Supply Side Policies

IGCSE Economics chapter 28 supply side policies PowerPoint notes.

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Fatima Zehra
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50 views15 pages

Chap-28 Supply Side Policies

IGCSE Economics chapter 28 supply side policies PowerPoint notes.

Uploaded by

Fatima Zehra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Chapter 28

Supply-side policies
Text book page 243
Learning objectives
define supply-side policy
analyse supply-side policy measures
including education and training, labour
market reforms, lower direct taxes,
deregulation, improving incentives to work
and invest and privatisation
evaluate the effects of supply-side policy
measures on government macroeconomic
aims
Resources for this topic
https://igcseaid.com/notes/economics-0455/4-
5-supply-side-policy/
Text book Cambridge IGCSE and O Level
Economics by Susan Grant page number 243-
249
https://www.economicsonline.co.uk/
Global_economics/Supply-side_policies.html
Vocabulary
Supply side policies
Privatization
Deregulation
Subsidies
Labour market
National minimum wages
Trade union
Aggregate demand
Aggregate supply
Supply Side Policies
Supply Side policies are the measures
how to improve the productive capacity
of the economy.
Supply Side Policies are government
attempts to increase productivity and
shift Aggregate Supply (AS) to the
right.
1. Reducing Income Taxes.

It is argued that lower taxes increase


the incentives for people to work
harder, leading to more output.
2. Increased education and training

Better education can improve labour


productivity and increase aggregate
supply.

3. Reducing the power of Trades Unions to


increase efficiency of firms e.g. less time lost to
strikes and to reduce unemployment
4. To reform the labour market

Labour market reforms are designed to make


labour market more efficiently. The intension is to
to improve efficiency, quality and quantity of
labour. E.g better education, barrier to entry e.g
excessive qualification and barrier to exit e.g long
term contracts.
Easier for employers to hire and fire employees to
adjust supply according to demand.
Trade union reforms. It will make labour market
more productive.
Reduced power of unions will reduce strike actions
and will make them flexible.
However, it will lead to more power to employers
and thus will lead to labour exploitation.
.
5. Providing better information
about jobs
This may also help reduce
unemployment.

6. Deregulation: it is the reduction or


elimination of rules by law to allow
more competition(free entry and exit)
and lower borrowing costs for
consumers and firms.
It reduces cost of production and
prices and leads to increase in
efficiency.
However monopoly may arise
8. Improving Transport and infrastructure.
This will help reduce firms costs.
The effects of supply-side policy

Successful supply-side policy will shift the AS


curve to the right.
Advantages of Supply-side Policy
Supply-side policy measures may reduce costs of
production, e.g. cuts in corporation tax will lower
cost
They may increase labour productivity ,e.g.
education
Lower costs and higher productivity will increase
aggregate supply/productive potential
higher aggregate supply/productive potential may
reduce cost of production and reducing price
level and hence reducing high inflation and allow
total demand to increase without causing inflation
Disadvantages of supply-side Policy

Some policy measures e.g. education spending will
increase total (aggregate) demand and this may rise by
more than total supply (1) causing inflation
The policy measures may not work e.g. privatisation
may lead to private sector monopolies developing and
these may push up prices
Spending on education may not improve labour
productivity
Some supply-side policy measures take time to work e.g.
education spending by that time inflation may not be a
problem or people may have got so used to inflation they
act in a way that causes further inflation
Advantages Disadvantages
Evaluation of Supply-side policies

 Supply-side policies can help reduce  However, supply-side policy can take a long time to
work its way through the economy. For example,
inflationary pressure in the long term improving the quality of human capital, through
because of efficiency and productivity gains education and training, is unlikely to yield quick
results. The benefits of deregulation can only be seen
in the product and labour markets. after new firms have entered the market, and this may
 They can also help create real jobs and also take a long time.
 In addition, supply-side policy is very costly to
sustainable growth through their positive implement. For example, the provision of education
effect on labour productivity and and training is highly labour intensive and extremely
costly
competitiveness.  Furthermore, some specific types of supply-side policy
 Increases in competitiveness will also help may be strongly resisted as they may reduce the power
improve the balance of payments. of various interest groups. For example, in product
markets, profits may suffer as a result of competition
 Finally, supply-side policy is less likely to policy, and in labour markets the interests of trade
unions may be threatened by labour market reforms.
create conflicts between the main objectives  Finally, there is the issue of equity. Many supply-side
of stable prices, sustainable growth, measures have a negative effect on the distribution of
full employment and a balance of payments. income, at least in the short-term. For example, lower
taxes rates, reduced union power, and privatisation have
all contributed to a widening of the gap between rich
and poor.
Exam Questions!
Governments can use a range of different
policies to encourage economic
growth .Explain how fiscal policy can be
used to encourage economic growth. [6]
0455/22/M/J/13
Discuss to what extent supply-side policies
are likely to be more effective than monetary
policies in stimulating economic growth. [8]
0455/22/M/J/13
Discuss whether supply-side policy measures
will reduce inflation.
0455/22/Feb/March/2016

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