Transcript In groups of 3 - 4 discuss and answer the questions below

IN GROUPS OF 3 - 4 DISCUSS AND
ANSWER THE QUESTIONS BELOW
.
WHAT IS AGGREGATE SUPPLY?
WHAT DOES SUPPLY SIDE REFER TOO?
WHAT WOULD SUPPLY SIDE POLICIES
BE?
HOW COULD THESE POLICIES
INFLUENCE SUPPLY?
SLO: Describe supply-side
policies and apply then to
economic models of
growth
SUPPLY SIDE MICRO-ECONOMIC
POLICY
Supply side= Policies that are directed at influencing supply in markets.
Supply side policies will be focused on encouraging
people to produce (supply) goods and services e.g.
 Lowering income tax
 Lowering capital gains tax rates,
 reducing regulation ( removing rules that restrict producers)
According to supply-side economics, consumers will
then benefit from a greater supply of goods and
services at lower prices.
NZ SUPPLY-SIDE POLICY HISTORY
Tended to concentrate over the past 20years on state
sector reform (Selling of government owned
enterprises) and increasing deregulation of industry.
Arguments for supply side policies
 The private sector producers can operate more efficiently
than the state sector can.
 Private sector producers operate more efficiently with fewer
rules and regulations
 State resources are more appropriately used to provide public
and merit goods (health, education, roads, and welfare) than
private goods (banking and communication)
Impact of micro-economic
reform on growth
More efficient producers
Lowers cost of production
Increased production =
Increase in GDP =
Economic Growth
EXAMPLE. PRIVATISATION OF
TELEPHONE SERVICES
Privatisation =Transferring ownership from the government to private firms.
Market for Goods
Price $
S
S1
Se
Privatisation often
lead to
reduced costs
for producers
S1
D
Qe
Q1
Quantity
HOW DOES PRIVATISATION LEAD TO
DECREASED COSTS FOR PRODUCERS?
There is a difference in incentives between public and
private sectors.
A tax-funded government business has a monopoly (the only
producer in the market) and thus has guaranteed revenues,
regardless of performance. And its workers are protected
both by unionization and by a civil service system which
virtually guarantees continued employment and pay
increases, regardless of performance.
A private firm in a competitive market must win over its
customers by offering them a superior combination of
performance and price. If it fails to deliver adequately, its
customers can go elsewhere.
Private firms producing public services – even firms which
competitively win exclusive contracts for a number of
years – therefore operate far more efficiently than
government monopolies.
MICRO ECONOMIC
REFORMS IN 1980S-1990S
The Financial Sector
 Removed interest rate controls
 NZ dollar floated
Government departments co-oporatised then privatised
 Post office split to – NZ Post, Post bank and telecom
 Railways were corporatised then sold
Labour Market freed up
 Employment contracts act 1991
Trade protection policies removed
 Removal Tarriffs and Quotas
Welfare benefits reduced
Health Sector Reformed
 Try to make it operate more efficiently using business type model
EXERCISE BOOKS PAGE 154-155
Read page 153-154