Supply side policies

Notes on supply side policies and there advantages/disadvantages. Briefly mentiones fiscal policy and interest rates at the end.

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  • Created on: 16-02-12 01:41
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Supply side policies
Supply side policies attempt to influence an economy's potential output by increasing the
quantity and quality of its factors of production. Exploiting natural resources.
Policies and their usefulness.
1. Education and training. Expensive but produces a more skilled workforce.
2. Welfare. Reducing benefits encourages people to work. Reducing benefits may be ineffective
if there are no jobs to go to. Also people will need to have training and support with things like
3. Trade union power. Trade unions were widely seen to be very powerful. They were able to
push through wage increases that were unjustified many people argued that in order to make a
country more productive you need a less powerful trade union system.
4. Minimum wage: Some people argue that high minimum wages cause problems because it
makes labour too expensive and employers don't employ workers they could have used. If you
get rid of the minimum wage the country becomes more competitive.
5. Labour market failure: There are jobs available but people don't know about them or are
unwilling to move. Costs may prevent people moving, especially to places like London. Issues
such as moving families and lack of familiarity.
6. Increasing research and development: You need an enterprise economy with innovation.
People develop better ways of doing things that help the economy grow. It is however very
7. Privatisation: The private sector may run services more efficiently. Many electricity and water
bills have risen since privatisation indicating that it doesn't always benefit people.
8. Enterprise culture: If more people take risks the country will have a greater amount of
Effectiveness of supply side policies.
Supply side policies may be effective because they may lead to a more skilled workforce, for
example increasing education and training leads to a larger proportion of the population with
specialist skills. This enables the economy to be more productive because they can become
producers of goods, rather than having to import them. Supply side policies can also lead to
higher levels of employment, an example being reducing benefits in order to encourage people
to work. Another advantage of using them is that they may lead to the development of new
products, especially if the government invests in research. This can help a country grow into a
leading economy renowned for specialist technology. As a consequence the balance of
payments would be more satisfactory as there is greater demand for exports. The minimum
wage is a contentious issue when considering supply side policies. On the one hand the minimum
wage has been seen to hinder economic growth as employers may not have the fund to employ
the amount of people they need, therefore a low minimum wage would be more satisfactory as it
leads the economy to be more competitive. On the other hand a low minimum wage means
people may struggle to pay for things like childcare and so could be discouraged from working.
Supply side policies can also be costly. The government would have to spend a huge amount on

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boosting the economy only works if there are jobs available for people to take. In addition the
move towards privatisation may have made the running of services more efficient but it has also
led to higher costs for consumers, a significant example being water and electricity bills. Labour
market failure is arguably the greatest example of why supply side policies do not always work.
There may be jobs available but if people are not aware of them employment will lot increase.…read more

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These policies are subject to time lag. It's hard to see any difference in the economy for a while
then suddenly the effect is evident.…read more


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