Deck 31: Supply-Side Policy

Question 1

Supply- side policies are government policies

A) that focus on increasing long- term production.
B) regarding taxes and expenditures.
C) that directly attempt to control prices and wages.
D) that are used to control the money supply.

Answer 1

that focus on increasing long- term production.

Question 2

An important instrument of supply- side policy has been the

A) tax system.
B) monetary system.
C) imposition of wage and price controls.
D) interest rate policy.

Answer 2

interest rate policy.

Question 3

Proponents for supply- side policies argue that the best way to increase the supply of goods and services is

A) to increase government production so that public sector employment increases.
B) to stimulate the supply of labour and capital and increase investment.
C) for the government to directly control prices and wages.
D) to increase the supply of money in the economy.

Answer 3

to stimulate the supply of labour and capital and increase investment.

Question 4

According to supply- side economists, as tax rates are reduced, labour supply should increase. This implies that

A) the substitution effect of a wage change is greater than the income effect of a wage change.
B) there is no income effect when tax rates are changed.
C) there is no substitution effect when tax rates are changed.
D) the income effect of a wage change is greater than the substitution effect of a wage change.

Question 5

Tax breaks designed to encourage investment in new technology are an example of

A) an incomes policy.
B) an anti- inflation policy.
C) a supply- side policy.
D) a monetary policy.

Question 6

A supply- side policy such as ______is not likely to be suggested by a Keynesian, whereas the supply- side policy of ______ would be suggested by a Keynesian.

A) benefit cuts to encourage people back into work; tax credits for investment projects
B) investment subsidies; reducing government expenditure to prevent crowding out
C) training schemes; reducing welfare benefits to increase incentives
D) anti- monopoly policy; reducing taxes to increase incentives

Question 7

What effect will a successful supply- side policy have on the production possibility curve?

A) An inward shift
B) A movement along
C) An outward shift
D) No effect

Question 8

Reducing the level of government expenditure, while at the same time adopting a tight monetary policy to reduce inflation, proved to be difficult. Which of the following helps to explain why this was so?

A) Statutory reserve ratios for banks had been abolished.
B) Reducing the PSNCR was itself inflationary.
C) Reducing the PSNCR increased the money supply.
D) The deflationary monetary policy triggered automatic fiscal stabilizers.
E) The government also wanted to cut taxes.

Question 9

Which of the following beneficial supply- side effects is not claimed to occur following cuts in the marginal rate of income tax?

A) Employment rises
B) Both equilibrium and disequilibrium unemployment fall even when wage rates are inflexible downwards
C) More people wish to work
D) None of the above

Question 10

What effect will a successful supply- side policy have on the aggregate demand curve?

A) Movement up along
B) Leftward shift
C) Rightward shift
D) Movement down along

Question 11

An increase in the level of benefit paid to an unemployed person would

A) reduce the cost of job search for the individual.
B) make leisure less attractive than work.
C) have no affect on the cost of job search.
D) make it more expensive for the individual to spend time in job search.

Question 12

Which of the following statements supports deregulation of industries?

A) Many instances of government regulation have succeeded in reducing competition in industries where competition may be beneficial.
B) Technological change has made it possible for many industries to become more competitive.
C) Since few real natural monopolies exist, there is rarely a reason for government regulation.
D) All of the above

Question 13

The Private Finance Initiative uses______to deliver public projects and services.

A) foreign loans
B) the private sector
C) marginal cost pricing
D) higher taxes

Question 14

Which of the following describes indicative planning?

A) Consultation between government, business and unions in order to co- ordinate their policies and plans
B) The nationalisation of large sections of the economy
C) Commands issued to different sectors of the economy to produce targeted amounts of output
D) Government intervention in the operation of markets for short periods of time
E) A type of planning undertaken by a group of countries acting together

Question 15

Which of the following is an example of interventionist supply- side policy?

A) Income tax cuts
B) Cutting unemployment benefits so as to encourage more people to accept job offers
C) Increased government expenditure on transport infrastructure
D) Deregulation

Question 16

A key supply- side policy is to make sure that workers are well trained. Which of the following is true?

A) UK labour turnover is less than that of comparable countries.
B) The UK spends a smaller percentage of its GDP on training than comparable countries.
C) UK workers are better trained than German workers.
D) UK workers are better educated than US workers.

Question 17

Deindustrialisation refers to

A) the modernisation of the manufacturing industry.
B) the decline in the country's manufacturing base.
C) the growth in the service sector.
D) the growth in science parks where only high technology industries are located.
E) the movement back to an agriculturally- based economy.

Question 18

Of the following possible reforms to the National Health Service (NHS), which were adopted by the 1990s Conservative governments in the UK?
(i) Devolution of responsibility for the provision of health care from regional authorities to hospital trusts
(ii) General practitioner budget holders purchasing services directly from hospitals on behalf of their patients
(iii) The introduction of charges to patients for consulting their NHS doctors
(iv) Greater competition between hospitals

A) (ii) and (iv)
B) (i), (ii) and (iv)
C) (i), (ii) and (iii)
D) (ii) and (iii)
E) (ii), (iii) and (iv)

Question 19

Which of the following is not one of the causes of regional imbalance in the UK?

A) EC policy
B) Regional multiplier effects
C) Capital immobility
D) Labour immobility

Question 20

A way of helping depressed regions by having wage subsidies, lower business taxes and capital subsidies has been suggested by

A) New Classical economists.
B) centre- left economists.
C) Monetarists.
D) left- wing theorists.

Question 21

One of the reasons suggested for the continued differences in prosperity between regions in the UK is

A) free movement of labour.
B) labour inertia.
C) the regional multiplier.
D) industrial inertia.

Question 22

New Classical economists are in favour of locally negotiated wages in depressed areas because they believe this will lead to

A) increased government intervention in depressed areas.
B) lower wages in prosperous areas giving incentives to workers to move.
C) low wages attracting new employers.
D) all of the above

Question 23

There are many UK schemes to help small businesses. Which of the following is not in operation in the UK?

A) Tax relief for investors in small companies
B) A lower rate of profits tax than large companies
C) Start- up grants for unemployed people starting new businesses
D) Preferential allocation of local and central government contracts
E) All are in operation

Question 24

Which of the following is an argument against interventionist industrial policy?

A) The provision of grants and subsidies distorts economic signals.
B) The government may finance extravagant projects that would otherwise not be economically viable.
C) Firms have no incentive to be efficient if they know they can rely on government subsidies.
D) None of the above
E) All of the above

Question 25

Which of the following policies would not tend to increase competition?

A) Introducing market relationships to the public sector
B) Nationalisation
C) Privatisation
D) Deregulation

Question 26

Two supply- side policies to cure inflation are anti- monopoly legislation and prices and incomes policies.

Question 27

Two examples of market- orientated supply- side policies are income tax cuts and deregulation.

Question 28

If aggregate demand is constant, a supply- side policy that successfully increases potential output is likely to result in lower unemployment.

Question 29

Government policies can only tackle the demand- side or the supply- side, not both together.

Question 30

If the government succeeds in reducing the power of labour, equilibrium unemployment may fall.

Question 31

Tax cuts are likely to increase incentives for firms and individuals to expand their activities within the economy.

Question 32

Lowering interest rates to prevent the exchange rate appreciating is a supply- side policy.

Question 33

The setting up of a new computer network to provide more detailed national information at job centres on vacancies is an example of a supply- side policy.

Question 34

A successful supply- side policy will cause the full- employment level of income in the Keynesian 45° line diagram to shift to the left.

Question 35

If the government wanted to reduce the natural level of unemployment from the supply- side, it could lower real wages.

Question 36

Offering local facilities and improvement of local infrastructure for potential new business is a market- oriented policy.

Question 37

Successful supply- side policies can reduce the need for deflationary demand- side policies.

Question 38

Although governments in most industrialised countries do not engage in national economic planning, virtually all intervene selectively in order to bring supply- side improvements.

Question 39

A supply- side policy that successfully tackles inflation will result in the aggregate supply curve shifting to the left.

Question 40

Would lowering wages raise the potential GDP of a country?

Question 41

'Third way' supply- side policies aim to help people to help themselves. Such policies involve a mixture of government support and market incentives.

Question 42

A cut in welfare benefits will have no effect on the speed with which individuals find work.

Question 43

Unlike France, the UK has never attempted any form of indicative planning.

Question 44

New Classical economists believe that wages need to fall in depressed areas in order to make it worthwhile for employers to offer people jobs there.

Question 45

If market prices were perfectly flexible, and there was perfect factor mobility, there would be no problem of regional or local inequality.

Question 46

If market prices were perfectly flexible, but there was significant factor immobility, there would be specifically regional or local unemployment problem.

Question 47

The Coalition's Enterprise Zones are an example of regional and urban policy.

Question 48

Regional multiplier effects add to migration effects into more prosperous regions through the creation of additional jobs in response to higher demand.

Question 49

Decide whether the following measures to cure employment are supply- side, demand- side or have elements of both.
(a) The use of incomes policy to keep costs down by preventing excessive wage increases
supply- side/demand- side/both
(b) The launch of a new government training programme for school leavers
supply- side/demand- side/both
(c) A new computer network to provide more detailed national information at job centres on vacancies
supply- side/demand- side/both
(d) A government investment programme targeted at key growth industries
supply- side/demand- side/both
(e) Income tax cut by 2p in the pound
supply- side/demand- side/both
(f) Lower interest rates to prevent the exchange rate appreciating
supply- side/demand- side/both

Question 50

What effect will successful supply- side measures have on the following curves?
(a) The production possibility curve
outward shift/inward shift/movement along
(b) The aggregate supply curve
rightward shift/leftward shift/movement up along/movement down along
(c) The aggregate demand curve
rightward shift/leftward shift/movement up along/movement down along
(d) The Phillips curve
rightward shift/leftward shift/movement up along/movement down along
(e) The withdrawals curve in the Keynesian 45° degree line diagram
upward shift/downward shift/no shift
(f) The injections 'curve' in the Keynesian 45° degree line diagram
upward shift/downward shift/no shift
(g) The full- employment level of income in the Keynesian 45° degree line diagram
rightward shift/leftward shift/no shift

Question 51

List two kinds of supply- side policies.

Question 52

List three supply- side policies which might be used to move the production possibility curve outwards.

Question 53

Give an example of a supply- side policy which has demand- side effects. Explain.

Question 54

Give an example of demand- side policy which has supply- side effects. Explain.

Question 55

List three market- orientated supply- side policies which might be used to move the production possibility curve outwards.

Question 56

Cuts in the marginal rate of income tax are claimed to have various beneficial supply-side effects:
(a) People work longer hours because the substitution effect from cutting the marginal rate of income tax is
less than the income effect.
true/false
(b) More people wish to work.
true/false
(c) People work more enthusiastically.
true/false
(d) Both equilibrium and disequilibrium unemployment fall even when wages are inflexible downwards.
true/false
(e) Employm

Question 57

Comment on the incentive effects for employers and workers of a cut in the rate of income tax.

Question 58

Give two arguments to explain why the free market might lead to a sub- optimal level of investment.

Question 59

Discuss the problems that have arisen from the introduction of market relationships in the provision of public sector services such as health and education.

Question 60

Name two types of interventionist industrial policy.

Question 61

Give two arguments against interventionist industrial policy.

Question 62

Give four types of interventionist industrial policy.

Question 63

Which of the following regional or urban policies would be advocated by free market economists and which by interventionists?
(a) Offering local facilities and the improvement of local infrastructure for potential new business
free market/interventionist
(b) The migration of labour should be encouraged by the reduction of benefit levels
free market/interventionist
(c) Capping high- spending local authorities, that impose excessive local taxation, since high taxation is a disincentive to firms locating in particular areas
free market/interventionist
(d) The government preventing the location of firms in already prosperous parts of the country
free market/interventionist
(e) Replacing nationally negotiated wage agreements by locally negotiated ones
free market/interventionist
(f) Provision of a range of local subsidies and grants to firms
free market/interventionist
(g) Setting a uniform business rate across the whole country
free market/interventionist

Question 64

Which of the following were part of the Thatcher and Major governments' approach to regional policy?
(a) Increasing government expenditure on regional assistance in real terms and targeting it more carefully
Yes/No
(b) Increasing government expenditure on regional assistance in money terms and targeting it more carefully
Yes/No
(c) Making regional assistance more cost- effective
Yes/No
(d) Abolishing Regional Development Grants (which were automatically available to firms in development areas)
Yes/No
(e) Abolishing Regional Development Assistance (which was granted at the discretion of the government)
Yes/No
(f) Increasing the reliance placed on grants from the European Regional Development Fund
Yes/No
(g) The introduction of a system of grants to small business in assisted areas
Yes/No