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"Discuss the Effectiveness of Supply Side Policies in Improving UK Economic Performance"

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Introduction

Kanak Shah Economics AS/b David Conquest "Discuss the Effectiveness of Supply Side Policies in Improving UK Economic Performance" Supply side policies are those designed to increase an economy's long-term growth and so increase aggregate supple or production. In terms of a graphical analysis, if supply side policies work, the long run AS (aggregate supply) curve would shift to the right. A number of various policies have been implemented to increase aggregate demand (AD). The first is deregulation. This involves removing laws and regulations which restrict competition. With deregulation, more firms will compete in the industry and the total supply of the good or the service will increase. A good example to look at is airline deregulation. All Europe flight routes were regulated by governments. There was not very much competition. With the introduction of deregulation, any airline company can fly on any routes that they bid for e.g. EasyJet and Buzz (all low cost airlines). This increases passenger numbers and there is more aggregate supply in the industry. ...read more.

Middle

Managers will also have greater responsibilities for ensuring continuity of production. Nevertheless, many state-run enterprises operate in areas where people have a basic right to enjoy the good or service without effective rationing by price. Examples include water, gas and electricity. Another argument against privatisation is that privatisation 'bonuses' are one-offs. Cutting income tax is another policy. The idea here is to encourage people to work harder and this increases supply. This works best when the marginal rate of tax is reduced, e.g. by doing overtime is a contribution to the economy. This is a positive point and in the short term leads to economic growth. However, reducing income tax indirectly raises things like V.A.T and this is a disadvantage as goods and services may become more expensive, causing people to consume and invest less. Cutting corporation tax is an additional policy. This should leave more funds for investment purposes which will have long-term benefits. ...read more.

Conclusion

Regional policy is the last policy. This involves specific help for individual parts of the country for high rates of unemployment. Advantages are that it reduces inequality of incomes and of opportunities. It also reduces the hardship associated with structural decline and reduces congestion in other regions. By reducing unemployment, regional policy reduces the waste and cost of keeping other on the 'dole'. Disadvantages are that there is little evidence that regional policy works to change long-term trends. Also, firms often move a very short distance to take advantage of the incentives but in doing so create no extra jobs or incomes. If supply side policy works, it will improve the performance of the economy by: * Reducing unemployment by increasing the incentive to work, improved training and education and reduced trade union power. * Raising economic growth and increased living standards. * Reducing inflation by raising the productivity of labour. * Improving the balance of payments by making the UK industry more productive and efficient. ...read more.

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A succinct explanation of supply side policies. All of them could be discussed further and some are not particularly well explained but a reasonable introduction to the topic.

Marked by teacher Dennis Salter 17/09/2013

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