Supply-side Policy (Cambridge (CIE) IGCSE Economics)

In 2015, Spain experienced a higher death rate than birth rate for the first time since 1939. It is forecast that its population will fall by 5.6 million over the next 50 years. Such a decline would be likely to influence the number and size of the country’s firms and have an impact on the environment. There are a variety of ways of increasing a country’s population. 

Explain two policy measures a government could introduce to encourage families to have more children.

The government of Slovenia has introduced a range of supply-side policy measures to influence the country’s inflation rate. Among other factors affecting the economy is a change in trade union membership and strength.

Explain two supply-side policy measures.

The government of Slovenia has introduced a range of supply-side policy measures to influence the country’s inflation rate. Among other factors affecting the economy is a change in trade union membership and strength.

Explain how supply-side policy measures effect two of the governments macroeconomic objectives 

More agricultural markets come close to perfect competition than markets for manufactured goods and for services. The goals of business organisations can vary between markets, and within markets. In 2017, the Nigerian government used supply-side policy measures to influence the goals and performance of firms in a range of markets and to lower firms’ average costs of production.

Explain two weaknesses of supply side policy

The use of supply-side policy measures, including deregulation, is moving China closer to a market economic system. Some supply-side policy measures, such as education and subsidies, can also increase a country’s economic growth rate. China joined the World Trade Organisation in 2001 and has since removed some quotas on imports and reduced some import tariffs. These measures may influence the size of its current account surplus.

Analyse how education and subsidies can increase a country’s economic growth rate.

It was predicted that global unemployment would rise by over two million in 2017. Unemployment rates, however, vary between countries. Some governments use fiscal policy measures and others use supply-side policy measures to reduce unemployment. The unemployment rate can also be influenced by trade protection.

Analyse how supply-side policy measures may reduce unemployment.

Teachers in many countries oppose their governments’ cuts in spending on education. They worry that this could reduce the standard of education and also the welfare of teachers employed in the state sector. Some teachers specialise in teaching one subject while others teach a number of subjects. 

Analyse the contribution that education can make in an economy.

More agricultural markets come close to perfect competition than markets for manufactured goods and for services. The goals of business organisations can vary between markets, and within markets. In 2017, the Nigerian government used supply-side policy measures to influence the goals and performance of firms in a range of markets and to lower firms’ average costs of production.

Discuss whether or not the use of supply-side policy measures by a government will reduce firms’ average costs of production

Estonia has one of the fastest internet speeds in the world. The government allows both direct and indirect taxes to be paid online. According to the World Bank, it is very easy for a firm to deal with construction permits and to register property in Estonia. A low level of government regulation affects how easy it is to start and to run a firm. Many new firms are labour-intensive but some become more capital-intensive as they grow.

Discuss whether or not an economy would benefit from less government regulation.

Confidence in the government’s reform agenda led to very strong growth of India’s stock exchange index in 2017. Firms liked the supply-side policy measures that had been introduced, such as government spending on infrastructure projects including building new motorways. However, opponents of the government claimed that the government was prioritising one government aim over others.

Discuss whether or not infrastructure projects will benefit an economy.

In 2016, the Indonesian government increased its spending on healthcare and education and considered raising the school leaving age. The government also planned to increase taxation. Such a move might conflict with its aim of reducing unemployment at a time when a number of countries were at risk of entering a recession.

Discuss whether or not a government should raise the school leaving age.

More governments are imposing taxes on unhealthy food and drinks. Such taxes are usually regressive. Some of these governments are also increasing their spending on healthcare. In other countries healthcare is provided by the private sector. The number of state-owned enterprises is declining in a number of countries due to privatisation.

Discuss whether or not consumers are likely to benefit from state-owned enterprises becoming private sector firms.

In the 1990s Cambodia became a mixed economy. One of the results of this was specialisation in the clothing industry. In 2005, import quotas for clothing in the key markets of the USA and the EU were removed. Clothing now accounts for 80% of Cambodia’s exports. The increased role of the private sector has resulted in a rise in malnutrition in Cambodia.

Discuss whether or not an increase in the role of the private sector will benefit an economy.

In early 2016, the central bank of the Republic of Turkey cut interest rates five times. This was despite an inflation rate of 7.6%. The economy had a combination of a low saving rate and weak investment. To stimulate economic growth the Turkish government announced a package of reforms including subsidies for research and investment.

Discuss the impact of supply-side policy measures on government expenditure and on government revenue.