Activity 1

(a) Explain some of the benefits that supply side policies can bring to an economy?

The video identifies higher economic growth through rises in individual or collective productivity.

(b) Supply side policies can be divided into market based and interventionist supply side
policies. Explain the difference between these two concepts.

Market based supply side policies aim to increase the growth of AS by placing a greater
emphasis on market forces and competition.

Interventionist policies aim to increase the growth of AS by placing a greater emphasis on

greater intervention by governments.

(c) Identify some examples of supply side policies identified in the video.

Examples of market based policies include encouraging competition through deregulation and
privatisation and reducing the amount of tax paid to provide greater incentives to work.

Examples of interventionist approaches include the direct provision of, for example, education
and training to improve labour productivity. Other examples might be improving transport to
allow workers to get to work more easily and transport goods across the country. Government
incentives to encourage entrepreneurship would also fall into this category.

Activity 2
Activity 3: Weaknesses of supply side policies
Looking at the list of supply side policies above, identify some of the weaknesses of the supply
side policies identified.

Any supply side policy aimed at improving the level of training or infrastructure in the economy
is both expensive to operate and also takes many years to bear fruit. Even in situations where
the government correctly identifies the correct level of training or infrastructure needed it may
become obsolete by the time the project is finished.

Similarly while some of the projects will be targetted effectively history is riddled with failed
projects attempted by governments. For example, extensive government house building
projects may end building the wrong type of houses or the correct housing type but in the wrong
location, leaving the project as an expensive white elephant.

Reducing tax rates (either income or corporation taxes) comes at an opportunity cost.

Lastly, policies aimed at weakening the power of trade unions or removing employment
protection or out of work benefits comes at a social cost to a society, as well as increasing
wealth and income inequality.

Activity 4: A focus on the UK

The UK is a nation which in the post-war period become accustomed to rising productivity, rising
real GDP and rising living standards. However, since 2007, productivity has fallen dramatically
behind the post-war trend and is struggling to catch up. Some of the specific problems
contributing to low levels of productivity include:

the growth of low-wage, part-time and contract jobs

state of the housing market – significant disparity in housing costs in some parts of the country
uncertainty from Brexit transition.
Describe why each of the above maybe acting as a drag on labour productivity?

Temporary/part-time jobs may be subject to lower productivity than full-time work where firms
have more confidence to invest in productivity.

The difficulty of obtaining affordable housing also reduces the mobility of labour - for example it
may be difficult for workers from low cost and low employment areas to move to areas of the
country with a surplus of jobs, due to the difficulty of finding a place to live.

The uncertainty surrounding Brexit has made some businesses appear reluctant to invest until
they have seen what the UKs future trading relationship will look like.

Activity 5
Why does this highlight the dangers of government intervention in infrastructure projects?
The video provides an excellent example of why many governments may be reluctant to invest
tax payers money in infrastructure projects, when there is no guarantee of success. The
question often asked 'if the private sector won't build it why should the public sector make a
success out of it?'

Activity 6
(a) According to the video why are US workers paid many times more than those in
Bangladesh?

It comes down to productivity, the productivity of the USA is very high, with workers typically
producing high value added products and using some of the best technology on the planet to
do so.

(b) Why have the wealthiest nations been able to increase their productivity consistently over
time?

The key to improved productivity is developing the factors of production e.g. human capital and
technology over time and take advantage of technological breakthroughs when they come along
e.g. USA productivity boomed in mid 1990s because of the invention of the internet which took
capital and used it more efficiently.

(c) Which nations were singled out as having made very significant recent gains in output per
worker and enjoyed greater living standards as a result?

China, Ghana, Mexico and South Korea