2281 · 4.5
Supply-side policy flashcards
Revision flashcards for Cambridge 2281 Supply-side policy (syllabus 4.5). Flip, recall, then mark a real past-paper question.
Card
What is supply-side policy?
Policies to increase productive capacity and efficiency — shifting LRAS right to raise potential output (Yf) and reduce cost-push pressure.
Card
Market-based supply-side measures?
Lower income/corporation tax, reduced regulation, privatisation, and trade union reform — aim to increase incentives and competition.
Card
Interventionist supply-side measures?
Government investment in education, training, infrastructure, and R&D — aim to improve human capital and productivity.
Card
LRAS shift right — effect on P and Y?
Potential output (Yf) rises; in equilibrium, real GDP can grow with lower inflationary pressure — P may fall or rise more slowly.
Card
Supply-side vs demand-side?
Demand-side (fiscal/monetary) shifts AD; supply-side shifts LRAS — non-inflationary growth if matched by AD.
Card
Evaluation point for supply-side policy?
Long time lags, upfront costs, possible rise in inequality (tax cuts benefit higher earners), and transitional structural unemployment.
Card
What is the primary goal of supply-side policy?
To increase the economy's productive potential by improving the quantity or quality of factors of production, thereby shifting the Long-Run Aggregate Supply (LRAS) curve to the right.
Card
Give two distinct examples of market-based supply-side policies.
1. Privatisation: The sale of state-owned assets to the private sector. 2. Deregulation: The removal of legal barriers to entry to increase competition in a market.
Card
Give two distinct examples of interventionist supply-side policies.
1. Increased government spending on education and vocational training to improve human capital. 2. Government investment in public infrastructure, such as new motorways or high-speed rail.
Card
What is meant by the 'time lag' associated with supply-side policies?
This refers to the significant delay between the implementation of a policy and its effect on the economy's productive capacity. For example, it takes many years for investment in education to create a more skilled workforce.
Card
How can a reduction in corporation tax act as a supply-side policy?
By allowing firms to keep a larger proportion of their profits, it increases the incentive and the financial ability for them to undertake investment in new capital and technology. This increases the capital stock and shifts LRAS to the right.