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Explain how supply side measures can be used to promote economic growth (15)

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Introduction

Explain how supply side measures can be used to promote economic growth (15) Supply side policies are government policies designed to increase the productive potential of the economy and push the LRAS curve to the right. They can affect the economy in a number of ways: increasing the supply of the quantity and quality of labour, raise the amount of capital employed, further the exploitation of natural resources and increase efficiency of the factors of production. 'Fixing infrastructure' was one of the factors David Cameron has mentioned that would provide immediate economic boosts and help with growth in the long term as well. To promote economic growth, supply side policies focus on shifting the LRAS curve to the right. Supply side policies are an economic theory that states that a reduction in taxes will stimulate the economy through increased consumer spending. Over time, the increased economic growth will generate a larger tax base, which will recoup the revenue lost from the tax cut. ...read more.

Middle

UK, business tax levels are only a small factor in business investment decision making and therefore the levels of business tax may seem relatively unimportant in the supply side policy mix. Supply side policies may also affect labour productivity and unit labour costs. Labour productivity is defined as output per worker. Increasing labour productivity will reduce unit costs, i.e. the cost of labour per unit of production. The firm will therefore be more competitive than before. However, if all firms in the industry also introduce the same methods, relative competitiveness will remain the same. As the economy in question grows, labour productivity will rise. More capital will be used by labour to produce goods and services. Workers will also become better trained and more highly skilled. Unit labour costs, however, will remain the same. This is because increases in productivity will be matched by increases in wages. ...read more.

Conclusion

Therefore the natural rate of unemployment will be low. On the whole, supply side factors help us to explain why some countries grow faster than others. It is becoming increasingly clear that maintaining and improving competitiveness is vital in achieving success in international markets. A rising share of GDP in most countries is down to international trade. There is a general view that the supply-side of the UK economy has improved over the last twenty years even though there are still weaknesses in several sectors and the UK must face up to increasingly fierce competition from other countries as the effects of globalisation take hold. Our product and labour markets are more flexible than they were a decade ago but many businesses find that government intervention places too heavy a cost of administration and other forms of regulation and that this acts as a barrier to future investment and growth. Increasing amounts of regulation both from the UK and the European Union can add to business costs and reduce competitiveness overall. ?? ?? ?? ?? Katie Bhagaloo Economics Unit 4 Mrs Harker ...read more.

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Response to the question

This essay engages well with the question, exploring supply side measures. As there is no command word such as "discuss" or "comment", there is no need to mention the effectiveness or significance. But, I would note that this question is ...

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Response to the question

This essay engages well with the question, exploring supply side measures. As there is no command word such as "discuss" or "comment", there is no need to mention the effectiveness or significance. But, I would note that this question is commonly asked in exams but with a focus on effectiveness, so this essay would not be as strong in that context. Nevertheless, this essay is fine as it explains the mechanisms well, exploring a variety of supply side measures.

Level of analysis

The analysis in this essay is sound, but there are places where improvements could be made. For example, the essay mentions "supply side policies focus on shifting the LRAS curve to the right" but at no point is a diagram included. Using diagrammatical analysis to show shifts and the effects will gain easy marks, as it shows a high level of skills. There is a lack in understanding shown when a diagram is not used, as a Keynesian curve would allow analysis of the different macroeconomic equilibria on the curve. A discussion of an increase in LRAS having an effect on inflation would've naturally led on if a diagram was used. I think the analysis is sometimes backwards, though in this essay. Saying "supply side policies may also affect labour productivity and unit labour costs." adds nothing to the argument. If I were doing this essay, I would be saying "A supply side policy is investment into education and training. This aims to increase labour productivity by providing the workforce with more skills". Being clear in economics is crucial, as it is so easy to swap the causes and suddenly the analysis makes no sense! If this essay wanted to go further, it could explore the limitations of supply side policies, but this isn't necessary given the task.

Quality of writing

The essay has a good structure, posing a strong introduction by defining the key terms. Similarly, the conclusion is strong by weaving together all the points to come to a strong argument that supply side policies are important. The style is fine, and technical terms such as natural rate of employment are used with confidence. Spelling, punctuation and grammar are fine.


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