1) A policy intended to improve conditions favorably, which encourages supply in an economy. For example improving education would increase the supply of educated workers in the workforce. This is contrasted with demand management policies which seek to increase and stabilise GDP by limiting demand. An ideal mix of such policies would combine supply side and demand management policies. (lse.co.uk)
2) Supply side economic policies are mainly micro- economic policies designed to improve the supply side potential of an economy, make markets and industries operate more efficiently and thereby contribute to a faster rate of growth of real national output. (Tutor2u.net)
3) Changes in the level or structure of government spending and taxation designed to improve the supply side of the economy through influencing incentives to save, to supply labour , to be entrepreneurial, and to promote investment, which are largely microeconomic in nature. (AQA Economics)
4) Government policies designed to increase the productive potential of the economy and push the long run aggregate supply curve to the right. (Economics, Alan Anderton)
5) Government policy that attempts to alter the level of aggregate supply directly (rather than through changes in aggregate demand). (Economics John Slowman)
Mico economic policies designed by the government to improve the productive potential of the an economy and shift the long run aggregate supply curve to the right.
2. Distinguish between supply-side policies and supply-side initiatives. [3 marks]
Supply side initiatives are generally on small or medium scale tools to adjust the supply side, mostly just started projects. Whereas supply side policies are much broader and much more likely to be long term, and they are specifically used to improve the supply side.
3. Find as many examples of supply side policies as you can, categorise them (in any manner you choose) and then display all of the policies you have found on your mind map. [6 marks]
Privatization
Decreasing trade union powers
Education
Training
Research & Development
Reducing Income Tax
Providing work information
Lower tariff barriers
4. Find five definitions of productivity stating the source you used for each definition. Using the best elements of each definition, create your own definition of productivity. [5 marks]
1) Output per unit of input employed. (AS/A2 Economics Blog)
2) The quantity of goods and services produced from each hour of a worker's time (Economics N. Gregory Mankiw, Mark P. Taylor)
3) Output per unit of input employed (Economics, Alan Anderton)
4) the rate per unit area or per unit volume at which biomass consumable as food by other organisms is made by producers. (Merriam- Webster)
5) A measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs. (www.businessdictionary.com)
5. Distinguish between production and productivity. [3]
Production is physical production without a measure of time or money or any other factor, it also does not reefer to how much capital or labour is working. Whereas productivity is physical production also including a factor like money or time.
6. Choose two supply side policies and explain how they affect productivity. [8 marks]
Education & Training- Training increases productivity since it trains the workers and gives them the skills and education they need to produce a product faster and more efficiently.
Providing work information- Providing information to job seekers about available jobs as well as providing information to firms about available specialists and workers increases the productivity of the supply side of a country. This is due to workers that are specialized in certain areas can find perfect jobs for them as well as firms will be able to find specialists for the job they need a person for.
7. What is the skills gap?
The skills gap is the difference in the education and training of workers. Some workers are suited for certain jobs more, as well as a Oxford graduate in biochemistry is more suited for a job in a lab than a man without a higher education. The skills gap does not only apear because some people are more motivated and smarter than others, a factor that effects this is also money. Some families are just not able to send their children to universities because of their financial situation setting them at a disadvantage compared to the upper and middle class. The government is trying to decrease this gap by offering scholarships to talented students. What university and school teacher people is not enough or exactly what they need for work.
8. State the three supply-side policies that you believe to be the most crucial in improving long-term macroeconomic performance. Justify your choices. [3 marks]
Privatisation is a very important and one of the most effective supply side policies since government owned companies are always inefficient and behind everyone. There is a great example from my home country Poland, a pharmaceutical company Polpharma which now have a turnover of around 600 million dollars and is owned by one of the wealthiest men in Poland Jerzy Starka. Polpharma established in 1935 and only privatized in 2000, after being privatised the company made about half of its workers redundant. When a company is owned by the government it does not head to maximise its profits, especially in a communist country, although after being privatised the company often becomes much more efficient and its productivity increases.
Investment & Innovation is also a vital supply side policy linking in as well with education and training. Investment and innovation allows firms to become more competitive by increasing their productivity. Innovation allows firms to invent new technologies that would make production quicker and more efficient and investment allows the firms to actually purchase the upgraded capital.
Education & Training is an important supply side policy since it allows the labour to be more effective and use the capital more effective also increasing the productivity therefore leading to the economy being more competitive.
9. Using examples, evaluate the importance of supply-side policies to the achievement of higher economic growth in countries such as the UK. [25 marks]
There are plenty of supply side policies I could be talking about but I will concentrate on some interesting ones for now. First lets begin with privatisation.
The polish company Polpharma which I have mentioned already is a very interesting example of the supply side policy privatisation. The company established in 1935 and privatised in 2000, with a turnover of about 600 million dollars per year. Just 20 years ago 3,500 people worked in the company and its turnover was around 100 million dollars, nowadays the company only employs around 1600 people. This shows how productively more efficient the company became over the years thanks to privatisation.
Mrs Margaret Thatcher has decreased the highest marginal income tax from 83% to 40%. Although over the years this did manage back up to 50%. This allows the people to receive more of the money they make, this motivating them to work more, as well since they have more disposable income they will spend more increasing a countries aggregate demand.
In the summer of 2010, Lord Drayson the science minister managed to create a UK innovation investment fund of £200m for companies that are in advanced manufacturing and life sciences. This is a great example of a supply side policy its investment into innovation.
Recapping on the 3 specific examples above I believe that supply side policies are very efficient and do help the economies long run growth. The policies tend to be also very effective if they are executed properly. Of course if there was corruption involved and the politicians not looking looking out for the countries good but for their own wallets good, then the policies would be inefficient. There is a good example of failed policies or more I would say bailouts right now in Greece, its not something shocking that some of the greek politicians are corrupt and that the bailout money will go to their pockets. Therefore are the fears of the recent bailouts not helping the greek economy to get out of its recession, therefore fitch downgraded greece from CCC to C since they are excepting the greek to default.
10. With the use of a diagram, evaluate the extent to which supply-side policies are an effective policy for combating inflation. [25 marks]
First Paragraph
Definition of supply side policies or inflation.
Examples of some supply side policies
Graph showing the aggregate supply curve moving outwards.
Second Paragraph
Examples how supply side policies increase productivity and analyses
privatization increases productivity and innovation and etc.
Third Paragraph
Increased productivity decreases costs
therefore aggregate supply shifts outwards
Decreasing costs
Fourth Paragraph
Although if aggregate supply shifts outwards then the prices go down
This might cause increase in aggregate demand shifting prices back to original position or even higher
11. “In the current environment, supply-side policies are of no use in reducing unemployment”. Evaluate this statement. [15 marks]
That unfortunately is very possibly true, since people have become inferior nowadays, machines can work longer hours, do everything more precisely, and most important cheaper. A worker needs to be paid at least a minimum wage nowadays, whereas a machine will be invested in once and all it will need are the materials to produce something.
Supply side policies nowadays are made to decrease costs, and labour is every often one of the most expensive capitals. Innovation, research, privatisation, educations, training, and reducing trade union powers all in some way decrease the amount of people needed and in that way not contributing to reducing unemployment.
Certain supply side policies indeed do not reduce or even increase unemployment but there are certain cases in which this statement is not true. Education and training is on both side of the spectrum since more educated staff and better trained can be more productive although looking at the other side educated and trained people can find a job easier. Decreasing unemployment benefits also helps to motivate people to look for jobs, similarly as providing information helps people find jobs they are suited for and employers to find people.
Concluding on all this the statement "in the current environment, supply side policies are of no use in reducing unemployment" isin my opinion a false statement since supply side policies can do both reduce and increase unemployment it depends on the exact policy not the whole in general.
12. “Raising productivity and enhancing the supply side of the economy is the most important factor in determining the performance of the economy’s external sector”. Discuss. [25 marks]
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