Study Notes
Supply-side policies aim to increase the aggregate supply in an economy by promoting higher productivity and efficiency through market-based and interventionist policies. These policies focus on long-term growth, improving competition, reducing unemployment, and increasing investment incentives.
- Market-based policies — involve promoting competitive markets through competition, labour market reforms, and incentive-related policies. Example: Privatisation and deregulation are common market-based policies.
- Interventionist policies — involve direct government intervention to achieve growth in potential output through investment. Example: Government investment in education and healthcare.
- Privatisation — transferring ownership of public sector firms to the private sector to increase efficiency. Example: Selling a government-owned utility to a private company.
- Deregulation — removing excessive regulations to reduce inefficiencies. Example: Reducing bureaucratic procedures for businesses.
- Trade liberalisation — reducing trade barriers to increase competition and efficiency. Example: Lowering tariffs on imported goods.
- Labour market reforms — increasing labour market flexibility to reduce costs and unemployment. Example: Abolishing minimum wage legislation.
- Incentive-related policies — providing incentives for productivity and efficiency. Example: Cutting personal income taxes to increase disposable income.
Exam Tips
Key Definitions to Remember
- Market-based policies
- Interventionist policies
- Privatisation
- Deregulation
- Trade liberalisation
Common Confusions
- Confusing market-based policies with interventionist policies
- Misunderstanding the impact of privatisation on efficiency
Typical Exam Questions
- What are supply-side policies? Supply-side policies are strategies to increase aggregate supply by improving productivity and efficiency.
- How do market-based policies differ from interventionist policies? Market-based policies promote competition, while interventionist policies involve direct government intervention.
- What is the role of privatisation in supply-side policies? Privatisation transfers public sector ownership to the private sector to increase efficiency.
What Examiners Usually Test
- Understanding of different supply-side policies
- Ability to evaluate the strengths and weaknesses of these policies
- Application of supply-side policies to real-world economic scenarios