Supply-side policy Edexcel International GCSE Economics revision
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In plain words
Fiscal and monetary policy change how much people want to buy. Supply-side policy works on the other side: how much the economy is able to produce. Better-trained workers, better roads and more competition all let a country make more with what it has.
It is slow, but it can raise output without pushing prices up.
6 things to know
- Supply-side policies aim to increase the productive capacity (the total supply) of the economy by making markets and workers more efficient.
- Measures: education and training, spending on infrastructure, labour market reforms, lower direct taxes, deregulation, privatisation, and better incentives to work and invest.
- Lower income tax gives people more reason to work. Lower taxes on profits give firms more reason to invest.
- Deregulation removes rules that hold firms back or keep new firms out, so there is more competition.
- Effects: growth without inflation, lower unemployment, and more competitive exports. On a diagram, the production possibility curve shifts outwards.
- Drawbacks: results take years, measures such as education are costly, and some, such as cutting benefits, can increase inequality.
Tips and tricks
- Supply-side policy is the answer when a question asks how to get growth without inflation: it raises what the economy can produce, not just what people want to buy.
- Its weakness is time. Training a workforce or building a railway takes years, so it cannot fix a sudden recession.
It lands in your notebook with its questions as flashcards.
Supply-side policy: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Which is a supply-side policy?
It improves the quality of the labour force, so more can be produced.
What is the aim of supply-side policy?
It works on how much the economy is able to produce.
How might a cut in income tax act as a supply-side policy?
Workers keep more of what they earn, so more people choose to work, or to work longer.
Which is a disadvantage of supply-side policies?
Skills and infrastructure take years to build.
Removing rules that stop new firms entering an industry is called
Fewer restrictions mean more competition.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Supply-side policy
Edexcel International GCSE Economics 4EC1 · 8 marks · papermunch.org
Name ______________________________ Date ______________
Define supply-side policy.[2]
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Policy designed to increase the productive capacity of the economy by improving the efficiency of markets and the quantity and quality of resources.
Explain how spending on education and training can reduce unemployment.[3]
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Workers gain skills that employers want, which makes them more productive and more occupationally mobile, so they are more likely to be hired and can move into industries with vacancies.
Explain one disadvantage of using supply-side policies to increase economic growth.[3]
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They take a long time to work: improving education or building new infrastructure takes years before output rises, and the government has to pay for them in the meantime.
Answers: Supply-side policy
- 1. Policy designed to increase the productive capacity of the economy by improving the efficiency of markets and the quantity and quality of resources.
- 2. Workers gain skills that employers want, which makes them more productive and more occupationally mobile, so they are more likely to be hired and can move into industries with vacancies.
- 3. They take a long time to work: improving education or building new infrastructure takes years before output rises, and the government has to pay for them in the meantime.