Terms in this set (21)
two types of supply-side policies?
what do supply-side policies focus on?
long run aggregate supply
training and education
market based policies to encourage competition?
private financing of public sector projects
restricting monopoly power
what are labour market reforms intended for?
reducing labour market rigidities
market based policies for labour market reform?
abolishing minimum wage
weakening trade union power
reduce unemployment benefits
reduce job security
incentive-related market based policies?
lower income tax
lower business taxes
What is the main problem with supply-side policies?
how do supply-side policies impact economic growth?
increase economic growth
arguments in favour of interventionist policies?
government provides vital support which the market would not give
arguments in favour of market-based policies?
government intervention can lead to misallocation of resources and inefficiency
no reliance on government spending
impact on employment?
market based:may reduce natural rate of unemployment but may increase unemployment
which policies burden government spending?
can supply-side policies be entirely positive?
what should interventionist and market based policies do to one another?
Policies to improve efficiency and productive capacity in the economy, shifting the AS curve to the right
INTERVENTIONIST SUPPLY-SIDE POLICIES
Government directly participates in improving the quality and quantity of factors of production to improve total productivity capacity.
1. Investment in human capital
e.g. education and training to raise productivity level of workers
2.Investment in new technology
e.g. encourage research and development
3. Investment in infrastructure
4. Industrial policies
e.g. tax allowances, subsidies lending programmes targeted to promote growth in key areas of the economy
MARKET-BASED SUPPLY-SIDE POLICIES
Government aims to reduce its role in the working of markets, and let markets operate the least restrictions to improve total productivity capacity.
1. Competition-encouraging policies
e.g. privatise state-owned enterprises, deregulation (removal of restrictions), trade liberalisation, anti-monopoly regulations
2. Labour market reforms
e.g. reducing power of labour unions, removal/reduction of unemployment benefits and minimum wages.
3. Incentive-related policies
e.g. reduce tax on personal incomes to increase incentive to work
Includes essential facilities and services (e.g. roads, airports and sewage treatment) that add to the capital stock of the economy and are necessary for economic activities.
Evaluation of interventionist supply-side policies
1. Addressing market failure resulting from positive externalities
e.g. under provision of education and infrastructure is addressed
2. Creation of employment
e.g. increased government spending leads to increased business demand
3. Impact on economic growth
e.g. increase in investment have positive impacts on economic growth
1. Impact on government budget
2. Time lag
e.g. provision of health care involves construction of hospitals and hiring doctors
Evaluation of market-based supply-side policies
1. Ability to reduce inflationary pressure
e.g. by curbing power of labour unions, increase in labour wages are slowed down, reducing inflationary pressure.
2. Increased competition and efficiency
e.g. state-owned enterprises are less efficient than private due to lack of profit-motive
1. Effect on environment
e.g. deregulation can have adverse effects on environment
2. Effect on equity
e.g. lowering unemployment benefits and minimum wages affect low-income households' welfare and equity
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