Supply Side policies

Supply side policies aim to… Improve the efficiency of factor markets, to boost productivity and hence the overall capacity of the economy shifting long run aggregate supply (LRAS) to the right and pushing out the PPF

Education….

Training

Immigration

Improved technology

What can Supply side policies involve?

Labour Market Reforms Reforms to employment laws Increased investment in education and training Reforms to the tax and benefit system flexible employment contracts Flexible pay arrangements –Performance-related pay –Share options schemes –Incentives for employer-based training

Supply side policies aim to… Improve incentives for people to search for and find work Increase the occupational and geographical mobility of labour Increase the productivity of labour Increase I and R&D spending by firms. Stimulate FDI Increase competition in markets

Benefits of supply side policies… Lower Inflation. Shifting AS to the right will cause a lower price level. By making the economy more efficient supply side policies will help reduce cost push inflation Lower Unemployment Improved economic growth Supply side policies will increase economic growth by increasing AS Improved trade and Balance of Payments. By making firms more competitive they will be able to export more.

Draw an AD/AS diagram Show an outward shift in LRAS What impact does it have on price stability? What impact does it have on employment? What impact does it have on economic growth?

Does an increase in Investment guarantee an increase in employment?

Problems with supply side… Supply side economics is a LONG TERM policy Its takes TIME – to improve literacy and education and for it to have an impact!

Problems with supply side policies Job insecurity - Access to state benefits fallen, inequality has increased in UK over past 20 years and supply side policies have played a part in this. An increase in AS is not good if there is not an increase in AD.

The importance of supply- side policies More productivity - better living standards Allows the economy to grow without inflation More competition - lower prices – gains in welfare Makes the UK more competitive in global markets Increased tax revenues to fund state spending Provides the platform for long term growth Importance of Supply Side Policy

Question 1 Which one of the following is an example of fiscal policy? A decision by the government to A decrease the exchange rate. B raise the minimum wage. C increase its budget surplus. D reduce the rate of interest.

Question 2 A deficit on Kazakhstan’s Balance of Trade means that generally A the total value of imports exceeds the total value of exports. B government expenditure exceeds government revenue. C the value of imports of services is less than the value of exports of services. D the volume of imports of goods and services exceeds the volume of exports of goods and services.

Question 3 The economy is in equilibrium at Y1. In order to move the economy to Y2, a government should increase A the exchange rate. B interest rates. C expenditure on education and training. D the level of taxation on business.

Question 4 In the short run, an increase in the government’s budget deficit is most likely to reduce A imports. B unemployment. C interest rates. D inflation.

Question 5 A large rise in interest rates is most likely to lead to an increase in A national output. B investment. C unemployment. D consumption.

Question 6 Which one of the following is most likely to cause a fall in aggregate consumer spending? A An increase in house prices B A reduction in interest rates C A rise in real national income D A reduction in government spending on welfare benefits

Question 1 Which one of the following is an example of fiscal policy? A decision by the government to A decrease the exchange rate. B raise the minimum wage. C increase its budget surplus. D reduce the rate of interest. C

Question 2 A current account deficit on the UK’s balance of payments means that generally A the total value of imports exceeds the total value of exports. B government expenditure exceeds government revenue. C the value of imports of services is less than the value of exports of services. D the volume of imports of goods and services exceeds the volume of exports of goods and services. a

Question 3 The economy is in equilibrium at Y1. In order to move the economy to Y2, a government should increase A the exchange rate. B interest rates. C expenditure on education and training. D the level of taxation on business. C

Question 4 In the short run, an increase in the government’s budget deficit is most likely to reduce A imports. B unemployment. C interest rates. D inflation. B

Question 5 A large rise in interest rates is most likely to lead to an increase in A national output. B investment. C unemployment. D consumption. C

Question 6 Which one of the following is most likely to cause a fall in aggregate consumer spending? A An increase in house prices B A reduction in interest rates C A rise in real national income D A reduction in government spending on welfare benefits D

Homework Evaluate two Economic Policies of the Government of Kazakhstan to achieve growth and stability. 12 Marks