Supply-side policy · AS Level Economics

What is an objective of supply-side policy?

• Ato shift the short-run aggregate supply (SRAS) curve to the left
• Bto shift the short-run aggregate supply (SRAS) curve to the right
• Cto shift the long-run aggregate supply (LRAS) curve to the left
• Dto shift the long-run aggregate supply (LRAS) curve to the right

What is the main objective of supply-side policies?

• Ato bring a country’s potential output up to the level of its actual output
• Bto ensure a budget surplus
• Cto ensure that the composition of output matches the pattern of demand
• Dto increase potential output

What is not a supply-side policy measure?

• Aderegulating industry to encourage more competitive markets
• Blinking unemployment benefits to the obligation to look for work
• Ctackling cyclical slump by lowering interest rates
• Dtackling structural unemployment by giving grants for labour mobility

A government reduces its expenditure on workplace training, increases the level of indirect taxes and reduces the rate of interest it pays on government debt.

How would these government macroeconomic policies be categorised?

supply-side fiscal monetary

• Acon con exp key
• Bexp con con con = contractionary
• Ccon exp exp exp = expansionary
• Dexp exp con

A government reduces the benefits that it pays to unemployed workers to increase the incentive to work.

Which types of macroeconomic policies are being used?

fiscal monetary supply-side policy policy policy

• A✓ ✗ ✗
• B✓ ✓ ✗
• C✓ ✗ ✓
• D✗ ✗ ✓

A government increases the basic rate of income tax to finance additional spending on apprenticeships and training.

Which types of macroeconomic policy are being used?

monetary supply side fiscal policy policy policy

• A✓ ✓ ✓ key
• B✓ ✓ ✗ ✓= used
• C✓ ✗ ✓ ✗= not used
• D✗ ✓ ✓

A government reduced the tax on company profits from 28% to 20%.

Which statement best describes this policy?

• AIt is both a contractionary fiscal policy and a supply-side policy.
• BIt is both an expansionary fiscal policy and a supply-side policy.
• CIt is both an expansionary fiscal policy and an expansionary monetary policy.
• DIt is both an expansionary monetary policy and a supply-side policy.

What is an example of a supply-side policy?

• Aan import quota to restrict the supply of goods
• Ba rise in interest rates to encourage the supply of savings
• Ca specific tax on the supply of goods to raise revenue
• Da subsidy to businesses to promote the supply of training courses

What is not an example of an expansionary supply-side policy?

• Aa reduction in government spending on training
• Ban increase in support for technological improvement
• Ca reduction in payments to the unemployed
• Dan increase in privatisation of industry

A country increases its spending on education and training. It pays for this by reducing unemployment benefit payments and increasing taxes on imports of machinery.

What is the likely effect of these changes?

human capital physical capital

• Adecreases decreases
• Bdecreases increases
• Cincreases decreases
• Dincreases increases

Which supply-side policy will encourage new entrepreneurs?

• Aan increase in government subsidy to small firms
• Ban increase in the national minimum wage
• Can increase in the power of trade unions
• Dan increase in the tax on business profits

Which statement about supply-side policies is correct?

• AThey solve the problem of demand deficient unemployment.
• BThey do not involve an opportunity cost.
• CThey reduce unemployment but do not affect the price level.
• DThey may reduce regional unemployment.

A government cuts income tax.

Why might this be seen as an example of a supply-side policy?

• AReal incomes are increased.
• BThe costs of businesses are reduced.
• CThe opportunity cost of unemployment has increased.
• DThe standard of living has improved.

A government decides to use supply-side policy to increase long-run aggregate supply (LRAS).

What is the most likely reason why this policy tool will not lead to a fall in the price level?

• AAggregate demand will also increase.
• BLabour productivity levels will increase.
• CWorkers will save any extra wages they earn.
• DWorkers will spend any extra wages on imports.

Assess whether fiscal policy or supply‑side policy is likely to be more effective in reducing unemployment in an economy. [12]

Assess whether ‘improvements to the supply side of the economy’ of Argentina would benefit everybody in Argentina. [6]

Assess the extent to which the use of supply-side policy would be the best way to reduce a deficit on the current account of the balance of payments. [12]

Assess whether supply-side policy or demand-side policy is the better way of reducing this inflation. [12]

Low unemployment is a macroeconomic policy objective for a government.

Assess the extent to which this is most likely to be achieved by supply-side policy. [12]

Assess the extent to which the policies suggested to improve infrastructure and to reduce the high rates of unemployment in South Africa are likely to reduce income inequality. [6]

Explain why expenditure on education and training is a supply-side policy and consider why its impact on the general price level may differ between the short run and the long run. [8]

Assess the extent to which supply-side policy is the best method to reduce the rate of inflation. [12]