The Five Supply-Side Policies
The five supply-side policies a government can use to raise the productive capacity of the economy, from investing in education and training to reforming trade unions, and their advantages and disadvantages.
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Growing what the economy can make
Some government policies try to change how much people spend, but supply-side policies work differently. They aim to raise the productive capacity of the economy, so it can make more goods and services in the long run. This module covers the five named supply-side policies, what each one does, and where each can fall short.
Supply-side words to know
Learn these before you sort the policies.
Skills against incentives
Supply-side policies work in different ways.
Name it, then show the capacity gain
In the exam, name the supply-side policy and then explain how it raises what the economy can produce. Training makes workers more skilled, lower taxes reward work and investment, and reforming unions or freeing markets can make firms more efficient. Always add one drawback, because these gains cost money or take years to appear.
Match the policy
- investment in education and training
- lower direct taxes
- lower taxes on business profits
- trade union reform
- gives workers more skills
- rewards people for working more
- leaves firms more to invest
- changes the rules on strikes
Match the effect
- privatisation
- de-regulation
- better training
- lower profit taxes
- private owners aim to run it efficiently
- fewer rules make it easier to trade
- a more skilled workforce
- more money kept for new machines
What do they aim for?
What is the main aim of a supply-side policy?
- To raise how much the economy is able to produce.
- To make people spend more this week.
- To change the level of interest rates.
- To buy more goods from abroad.
Spot the supply-side policies
Select the TWO actions that are supply-side policies.
- Investing in education and training
- Reforming the trade unions
- Raising interest rates
- Sending everyone a one-off cash payment
Money left to invest
A firm makes 100 units of profit. After the government lowers the tax, the firm pays 20 units in tax. Subtract to find how many units the firm keeps to invest. What is the answer?
Order the training effect
Put the effect of investing in training in order, earliest first.
- The government funds more training
- Workers gain new skills
- Firms produce more per worker
- The economy can make more overall
Complete the summary
Supply-side policies aim to raise the productive _____ of the economy. Investing in education and _____ gives workers more skills. Lower taxes on business _____ leave firms more to invest. Moving a business from state to private ownership is called _____.
Spot the named policies
Tap the TWO items that are named supply-side policies.
- education and training
- trade union reform
- changing interest rates
- a one-off spending boost
Judge the policy
Read each case and choose the best answer.
- A government funds apprenticeships to give young people work skills. Which type of policy is this?
- A government lowers the tax on business profits to encourage firms to buy new machines. What is the intended effect?
- A critic says a training scheme is slow and costly. What kind of point is this?
Explain supply-side policy
Explain what supply-side policies aim to do, using named examples, and give one advantage and one drawback.
- Say what supply-side policies try to raise
- Name two of the five policies and how each helps
- Give one drawback that applies to supply-side policies