supply side policy

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  • Created by: annie.m13
  • Created on: 28-04-18 16:21
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  • supply side policy
    • any policy that
      • improves the economys productive potential
    • ways of improving the productivity of factors
      • using the tax system
        • to provide incentives to stimulate outpu
        • reducing direct tax such as income and corporation
          • lower income tax encourages the unemployed to get into work
          • lower corporation tax encourages entrepreneurs to start up
      • promotion of greater competition in labour markets
        • drives down wages
      • improvements to labour mobility
      • better education and training
      • local rather than centural pay bargaining
        • means that jobs are payed differently in different parts of the country depending on supply
    • improving the performance of firms
      • to improve the competition and efficieny
      • gov may give grants to firms to assisst then using new technology and innovation
        • can also be done through a reduction in tax
      • deregulation of a product market
        • removes barriers to entry
          • makes markets more competitive
      • privitisation
      • constant supply of new firms
        • small businesses are often innovative and flexible
    • effects
      • shifts AS right
    • evaluation
      • advantages
        • help reduce inflation in the longterm
        • create new/more jobs
        • increase in competitiveness
          • improve the balance of payments
        • less likely to create conflicts between the macroeconomic objectives
      • disadvatages
        • can take a long time to work
        • costly to implement
        • may be resisted as they may shift power from groups
          • e.g. more competition = less monopoly
        • can reduce equity and the distribution of income (at least in the short term)
          • lower tax rates/privitisation etc.

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