Economics- Edexcel 2.6.3
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| Supply-side policies | policies that improve the productive potential of an economy, illustrated by an outward shift of LRAS
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| 2 types of supply-side reforms | market-led policies and state/government intervention
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| Market-led policies | designed to make markets work better and give the private sector more freedom
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| State / government intervention | intervention in markets to overcome market failures
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| What do supply-side reforms affect? | short and long run AS, but usually focused on LRAS
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| Time frame on supply-side reforms | can be short or long
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| Main aims of supply-side policies look to improve/increase | incentives to look for work/labour & capital productivity/occupational and geographical mobility of labour/investment/competition/sustained non-inflationary growth/new businesses/living standards & regional economic balance
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| What happens if supply-side policies work? | sustained improvement in trade-off between inflation & unemployment/flexible to external demand & supply-side shocks/better living standards/less unemployment/high competitiveness
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| Interventionist supply-side policies | involve government intervention to overcome market failure
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| Examples of interventionist supply-side policies | state investment in public sector/minimum or living wage/higher taxes on wealthy/active regional policy/selective import controls/management of exchange rate/nationalisation
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| Active regional policy | the government's policy to boost economic activity in a specific region of the country or trading area such as the EU
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| How can human capital be improved? | sustained gains in average educational attainment, more and better quality training, higher real incomes allowing people to consume more knowledge, inflow of migrants
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| R&D | research and development
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| Biggest barriers to innovation | risk aversion, uncertainty about firms’ ability to exploit research profitably, lack of high-skilled workers in key research industries
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| Product innovation | small-scale, frequent subtle changes to the characteristics and performance of a good or service
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| Process innovation | changes to the way in which production takes place or is organised
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| Creative destruction as a term was created by who? | Joseph Schumpter
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| Creative destruction meaning | complete upheaval of the established order in the pursuit of innovation
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| FDI | foreign direct investment
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| Policies to attract FDI | attractive rates of corporation tax,soft loans & tax reliefs, trade & investment agreements, flexible labour markets, high quality critical infrastructure, open capital markets to allow remitted profits, lower unit labour costs
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| market-based supply-side policies | cut gov spending, lower taxes, reduce red tape, improve flexibility, competition policies, privatisation, opening the economy
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| Possible drawbacks of market-led supply-side policies | low taxes don’t improve work incentives, increases in incomes and wealth inequality, instability when deregulating markets, employment and income insecurity
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| Major supply-side weaknesses of UK economy | low R&D spending, low capital investment spending, skill shortages, high economic inactivity in labour market, low labour mobility, ageing infrastructure, regional economic imbalances, productivity gap
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| Strengths of the supply-side in the UK economy | emerging industries like renewable energy, life sciences, creative sector, financial technology, higher education, nanotechnology
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| Aggregate supply | total planned output of goods and services at a given time and price level
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| Competition policy | any policy which seeks to promote competition and efficiency in markets and industries
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| demographic change | any change in the population
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| deregulation | reducing barriers to entry to make the supply-side of an industry more competitive
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| Free-market policies | policies to increase competition
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| Full capacity output | level of GDP where all available factor inputs are fully employed
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| hysteresis | when a sustained period of very low AD can cause permanent damage to the supply side
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| incentives | used to make goods and services markets work more efficiently and therefore creating greater productive capacity
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| Income tax cuts | lowering direct taxes to improve work incentives and productivity
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| infrastructure | investment in telecoms, rail, ports, roads, energy and other utilities
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| Interventionist policies | involve interventions to overcome market failure that might limit supply-side potential
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| Labour market flexibility | market for people with many short-term job contracts and unpredictable earnings
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| Labour productivity | measures efficiency
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| Pro-market supply-side policies | policies focus on reducing the size of the state and extending the role of market forces in allocating scarce resources
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| privatisation | involves selling state-owned assets to the private sector
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| shocks | unexpected events that can affect both AD and AS
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| Trade liberalisation | lowering import tariffs and eliminating quotas to increase competition
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| Zero-hours contract | workers employed without any guarantee about the amount of work they will have
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