Practise evaluating supply-side policies for employment, growth and inflation using country context and clear short-run and long-run trade-offs.
In 2022 many countries experienced low rates of economic growth and high rates of inflation.
Evaluate supply-side policies that a government could use to increase the rate of economic growth and to decrease the rate of inflation. Refer to a country of your choice in your answer.
Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance.
The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited.
Knowledge, Application and Analysis ( 12 marks) - indicative content
- Supply-side policies are designed to increase productivity, competition, and incentives in an economy
- It can be shown via a shift outward of the LRAS creating potential growth and lower inflation;
credit use of relevant AD/AS diagrams
Policies include:
- Increased government spending on skills through investment in education and/or training - this would increase human capital and raise productivity
- Increased government spending on infrastructure investment (e.g. roads or broadband) - this would reduce industry costs or improve access to markets
- Reducing the level of welfare benefits - this will incentivise the unemployed to take jobs, work harder and increase output per worker of those in work
- Privatisation - this may lead to increased competition, greater innovation resulting from higher R&D spending, and therefore higher productivity
- Cutting cost of bureaucracy and/or deregulation of firms - this would raise efficiency and productivity by increasing competition between firms
- Reducing regulation and/or increasing competition by reducing barriers to entry in product markets
- Reducing corporation tax - this incentivises firms to innovate by investing in technological advancements and therefore increasing potential output
- Reducing income tax - this may motivate employees to work harder/longer
NB Award a maximum of level 3 if no reference to a specific country
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-3
Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models.
Use of generic material or irrelevant information or inappropriate examples.
Descriptive approach, which has no chains of reasoning.
Level 2
4-6
Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models.
Limited application of knowledge and understanding to economic problems in context.
A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3
7-9
Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident, but they may not be developed fully, or some stages are omitted.
Level 4
10-12
Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question.
Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.
Evaluation (8 marks) - indicative content
- Government has to spend a significant amount of money to come out of this period of low rates of economic growth as it has been ongoing since 2022
- Significant time lags and implementation lags for supply-side policies
- Creates an opportunity cost for the government: funds may not be spent in areas that would contribute to high productivity
- Asymmetric information may mean that supply-side policies are targeted in the wrong areas of the economy and will not have the desired outcome
- Supply-side policies are less effective when there are large amounts of spare capacity in an economy: they create potential growth but no actual growth
- Consideration of the effectiveness of supply-side policies such as infrastructure and education at delivering economic growth
- Depends on the quality of education, training and infrastructure projects
- Privatisation may lead to private monopolies, leading to lower productivity
- Cut in welfare benefits designed as an incentive to work may be ineffective if the unemployed are willing to receive lower payments and do not work
- Reducing bureaucracy may create unemployment in the short-term
- Reducing corporation tax rates would be ineffective if the companies are uncertain about the prospect of making profit in the future
- Reducing income tax rates may result in employees taking more leisure time
- Supply-side policies are more effective than demand-side policies as there is unlikely to be a trade-off between economic growth and low rates of inflation
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-3
Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2
4-6
Evidence of evaluation of alternative approaches.
Some supporting evidence/reference to context.
Evaluation is supported by a partially developed chain of reasoning.
Level 3
7-8
Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.