EC2 part 2

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What are supply side policies?
They are designed to increase the productive potential of an economy by improving the efficiency of the factors of production. They are aimed at shifting the inelastic part of the curve
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How do supply side policies help businesses?
They help businesses by improving the quantity and quality of the factors of production
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What are the aims of supply side policy?
They help government achieve all 4 macroeconomic objectives. Increasing output increases GDP- economic growth. Increasing GDP and business output reduces unemployment. Increase productivity decreases inflation. Lower inflation increases international
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Give 2 benefits of supply side policy
Only policy that enables the government to achieve all 4 macroeconomics objectives at the same time. Some supply policies don’t need government spending e.g. reducing the NMW
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Give 3 limitations of supply side policy
Only effective if equilibrium output is at the inelastic part of the AS curve, some policies e.g reducing NMW will not help the government achieve its objective of fair distribution of income, they take a long time to have an effect- time lag
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How can supply side policies be evaluated?
Success of policy depends on effectiveness of the particular measure used, the effectiveness of money spent on investment depends on what the money is spent on
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Define exchange rate
The external value of a currency measured against another currency
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Who decides the value of a currency?
It is decided in the Foreign exchange market, which is controlled by major international banks. These banks hold, buy and sell large quantities of currencies
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What are the 2 main factors that influence the value of a currency?
Demand for the currency- if demand increases, this will increase the value of the currency. Supply of the currency- if supply increases, this will decrease the value of the currency
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What does demand for the currency in the FEM represents?
The demand from people wishing to buy the currency
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What does supply of a currency in the FEM represents?
The supply from people wishing to sell the currency
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What factors increase the demand for the £ and therefore increase the external value of the £
An increase in uk exports, an increase in uk interest rates, more tourists visiting the uk, more foreign businesses investing in the uk, increase in confidence about the uk economy and government policy to buy cheaper imports
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What factors increase the supply of the £ and therefore reduce the external value of the £
Uk importing more goods from abroad, an increase in interest rates in other countries, more uk tourist visit abroad, more uk businesses investing abroad, decrease in confidence about the uk economy, governments policy to sell more exports
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What is free trade?
When countries allow imports, exports and investment from each other without any restrictions
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What are the benefits and drawbacks of free trade for consumers?
Trade reduces prices of goods and services. This increases consumer surplus. Also, consumers benefit from wider range and better quality goods and services. But some imports may have a negative impact on the countries religion e.g cigarettes - smokin
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What are the benefits and drawbacks of free trade for importing businesses?
Raw materials are cheaper and better quality. Also, there are more jobs available. But makes businesses dependent on foreign companies and countries which they have no control of, if a currency decreases in value imports will be more expensive
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What are the benefits of free trade for exporting businesses?
Trade means a bigger market - more consumers, more sales, more profit. Also businesses can benefit from economies of scale - as businesses increase output, the average cost of making each product falls. If one market declines or country goes into rec
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What are the benefits of free trade for the economy?
Lower import prices reduce inflation. Enables efficient businesses to increase output - increases economic growth. Increasing economic growth reduces unemployment
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What are the benefits of free trade for the global economy?
Global output increases - encourages countries to specialise in producing goods which they are efficient at making so they can increase output. Improves international relations between countries and reduces conflicts- encourages cooperation between c
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What is protectionism?
Any policy that protects domestic producers from international competition using government intervention
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What are the 5 main methods of protectionism?
Tariffs- tax on the price of imported goods paid by importing businesses, quotas - a limit on the quantity of goods coming into a country, regulations- rules and regs to reduce imports, subsidies - government gives a subsidy to industries in the coun
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Card 2

Front

How do supply side policies help businesses?

Back

They help businesses by improving the quantity and quality of the factors of production

Card 3

Front

What are the aims of supply side policy?

Back

Preview of the front of card 3

Card 4

Front

Give 2 benefits of supply side policy

Back

Preview of the front of card 4

Card 5

Front

Give 3 limitations of supply side policy

Back

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