as macro supply side competitiveness
DESCRIPTION
Supply side issues relating to the UK economyTRANSCRIPT
SUPPLY SIDE COMPETITIVENESS AND GROWTH
AS Macro Session 4
09/04/2023
Loads of Revision Help on Twitter: @tutor2u_econ
Reminder of key objectives of macroeconomic policy
Price Stability – i.e. Low Positive Inflation
A Sustainable Growth of Real GDP (National
Output)
Falling Unemployment / Full Employment?
Higher Average Living Standards (Income per
capita)
Improved Global Competitiveness / Trade
Balance
A More Equitable Distribution of Income
and Wealth
Reminder of key objectives of macroeconomic policy
Price Stability – i.e. Low Positive Inflation
A Sustainable Growth of Real GDP (National
Output)
Falling Unemployment / Full Employment?
Higher Average Living Standards (Income per
capita)
Improved Global Competitiveness / Trade
Balance
A More Equitable Distribution of Income
and Wealth
Reminder of key objectives of macroeconomic policy
Price Stability – i.e. Low Positive Inflation
A Sustainable Growth of Real GDP (National
Output)
Falling Unemployment / Full Employment?
Higher Average Living Standards (Income per
capita)
Improved Global Competitiveness / Trade
Balance
A More Equitable Distribution of Income
and Wealth
Reminder of key objectives of macroeconomic policy
Price Stability – i.e. Low Positive Inflation
A Sustainable Growth of Real GDP (National
Output)
Falling Unemployment / Full Employment?
Higher Average Living Standards (Income per
capita)
Improved Global Competitiveness / Trade
Balance
A More Equitable Distribution of Income
and Wealth
Reminder of key objectives of macroeconomic policy
Price Stability – i.e. Low Positive Inflation
A Sustainable Growth of Real GDP (National
Output)
Falling Unemployment / Full Employment?
Higher Average Living Standards (Income per
capita)
Improved Global Competitiveness / Trade
Balance
A More Equitable Distribution of Income
and Wealth
Reminder of key objectives of macroeconomic policy
Price Stability – i.e. Low Positive Inflation
A Sustainable Growth of Real GDP (National
Output)
Falling Unemployment / Full Employment?
Higher Average Living Standards (Income per
capita)
Improved Global Competitiveness / Trade
Balance
A More Equitable Distribution of Income
and Wealth
Annual % change in GDP at Constant Prices
Annual Growth of Real GDP
Source: International Monetary Fund
06 07 08 09 10 11 12 13
An
nu
al %
ch
an
ge
in r
ea
l GD
P
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
An
nu
al %
ch
an
ge
in r
ea
l GD
P
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
China
United Kingdom
Brazil
India
Percentage of global trade
Can we reverse this decline?
Source: Reuters EcoWin
92 94 96 98 00 02 04 06 08 10 12 140.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
Pe
rce
nt
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
Asian Emerging Nations (Including China)
United Kingdom's share of world trade
Key Supply-Side Challenges for the UK Economy
Persistent Productivity Gap
High youth unemployment
Deep regional economic divide
Structural trade deficit (BoP)
Low trend growth of GDP
Rise of Emerging Nations
Low investment & research spending
Rising inequality / relative poverty
Key Supply-Side Challenges for the UK Economy
Persistent Productivity Gap
High youth unemployment
Deep regional economic divide
Structural trade deficit (BoP)
Low trend growth of GDP
Rise of Emerging Nations
Low investment & research spending
Rising inequality / relative poverty
Key Supply-Side Challenges for the UK Economy
Persistent Productivity Gap
High youth unemployment
Deep regional economic divide
Structural trade deficit (BoP)
Low trend growth of GDP
Rise of Emerging Nations
Low investment & research spending
Rising inequality / relative poverty
Key Supply-Side Challenges for the UK Economy
Persistent Productivity Gap
High youth unemployment
Deep regional economic divide
Structural trade deficit (BoP)
Low trend growth of GDP
Rise of Emerging Nations
Low investment & research spending
Rising inequality / relative poverty
Key Supply-Side Challenges for the UK Economy
Persistent Productivity Gap
High youth unemployment
Deep regional economic divide
Structural trade deficit (BoP)
Low trend growth of GDP
Rise of Emerging Nations
Low investment & research spending
Rising inequality / relative poverty
Key Supply-Side Challenges for the UK Economy
Persistent Productivity Gap
High youth unemployment
Deep regional economic divide
Structural trade deficit (BoP)
Low trend growth of GDP
Rise of Emerging Nations
Low investment & research spending
Rising inequality / relative poverty
Key Supply-Side Challenges for the UK Economy
Persistent Productivity Gap
High youth unemployment
Deep regional economic divide
Structural trade deficit (BoP)
Low trend growth of GDP
Rise of Emerging Nations
Low investment & research spending
Rising inequality / relative poverty
Key Supply-Side Challenges for the UK Economy
Persistent Productivity Gap
High youth unemployment
Deep regional economic divide
Structural trade deficit (BoP)
Low trend growth of GDP
Rise of Emerging Nations
Low investment & research spending
Rising inequality / relative poverty
09/04/2023
Loads of Revision Help on Twitter: @tutor2u_econ
Analysis
Evaluation
Application
Good application opens the door to good analysis and good evaluation
7:49:36
Long run supply side growth
• Analysis - Identify 3 policies that might boost the supply side of the UK economy in the long term
• Evaluation – What factors might limit the effectiveness of your suggestions?
Improving labour supplyAnalysis
• A labour shortage is often a reason limiting the economy’s scope for growth
• Additional labour can be obtained from overseas, or by boosting participation rates of the native UK labour force.
Evaluation• Immigration is politically
controversial – depends on nature of migration
• Tax and welfare systems can create disincentives for people to take paid work34
Longer Term Dynamic Effects of Migration
Labour Market Fiscal Effects
Consumption Competitiveness
Waves of inward migration can have structural effects on a country’s macroeconomic performance
Increase in the labour supply which might cause lower unit labour costs for host country
Inward migration increases pressure on govt spending but will also lead to rising tax revenues
• Human capital helps generate new ideas• Many migrants start businesses – possible exporters• Knowledge spillovers
• Increase in population size• Rising demand for public services• If housing stock is fixed, can lead to higher prices and rising rents
Longer Term Dynamic Effects of Migration
Labour Market Fiscal Effects
Consumption Competitiveness
Waves of inward migration can have structural effects on a country’s macroeconomic performance
Increase in the labour supply which might cause lower unit labour costs for host country
Inward migration increases pressure on govt spending but will also lead to rising tax revenues
• Human capital helps generate new ideas• Many migrants start businesses – possible exporters• Knowledge spillovers
• Increase in population size• Rising demand for public services• If housing stock is fixed, can lead to higher prices and rising rents
Longer Term Dynamic Effects of Migration
Labour Market Fiscal Effects
Consumption Competitiveness
Waves of inward migration can have structural effects on a country’s macroeconomic performance
Increase in the labour supply which might cause lower unit labour costs for host country
Inward migration increases pressure on govt spending but will also lead to rising tax revenues
• Human capital helps generate new ideas• Many migrants start businesses – possible exporters• Knowledge spillovers
• Increase in population size• Rising demand for public services• If housing stock is fixed, can lead to higher prices and rising rents
Longer Term Dynamic Effects of Migration
Labour Market Fiscal Effects
Consumption Competitiveness
Waves of inward migration can have structural effects on a country’s macroeconomic performance
Increase in the labour supply which might cause lower unit labour costs for host country
Inward migration increases pressure on govt spending but will also lead to rising tax revenues
• Human capital helps generate new ideas• Many migrants start businesses – possible exporters• Knowledge spillovers
• Increase in population size• Rising demand for public services• If housing stock is fixed, can lead to higher prices and rising rents
Longer Term Dynamic Effects of Migration
Labour Market Fiscal Effects
Consumption Competitiveness
Waves of inward migration can have structural effects on a country’s macroeconomic performance
Increase in the labour supply which might cause lower unit labour costs for host country
Inward migration increases pressure on govt spending but will also lead to rising tax revenues
• Human capital helps generate new ideas• Many migrants start businesses – possible exporters• Knowledge spillovers
• Increase in population size• Rising demand for public services• If housing stock is fixed, can lead to higher prices and rising rents
Improving labour mobilityAnalysis
• The UK housing market often makes it difficult to overcome problems of geographical immobility of labour
• Big differences in house prices and poor transport links prevent labour movement
Evaluation• Tackling the housing
market and transport infrastructure problems Britain faces is a huge task
• Interventions are often hugely expensive with significant time lag problems
34
Improving labour productivity
Analysis
• It’s vitally important that the UK doesn’t just have more labour, but better labour – that can produce higher value output
• Investment in skills, training and equipment are all possible routes to higher productivity
Evaluation• This is a long term
problem that can take a generation to tackle.
• Who is responsible? Firms or government?
• Who should pay?34
Improving innovation and enterprise
Analysis
• By creating the conditions in which innovation and enterprise thrive, new businesses will start-up, new products will be developed and new markets pioneered
• The greater the incentive, the bigger the gains
Evaluation• Tax cuts to incentivise
entrepreneurial wealth might cause increases in inequality.
• Innovation often has high failure rates, making it hard for governments to ‘pick winners’.
34
Improving infrastructure
Analysis
• Improved infrastructure could help reduce the ‘bottlenecks’ that prevent the economy from expanding
• Improved transport can aid labour mobility, cheaper energy reduces costs across the economy.
Evaluation• Transport and energy
infrastructure is expensive and are subject to significant time-lag effects.
• Infrastructure provision sometimes conflicts with other policy goals, such as reducing environmental impacts
34
Economic Importance of Infrastructure Investment
Examples of UK infrastructure projects• 2nd Forth Road Bridge• Cross Rail and the High Speed Rail project• London Gateway Port & new London super sewer• Nuclear power plants including Hinkley Point
Economic significance of infrastructure• Potentially high multiplier effects from multi-
billion investment projects – boosts AD and jobs• Lack of infrastructure may discourage FDI• Increases the capital stock / productive potential
Economic Importance of Infrastructure Investment
Examples of UK infrastructure projects• 2nd Forth Road Bridge• Cross Rail and the High Speed Rail project• London Gateway Port & new London super sewer• Nuclear power plants including Hinkley Point
Economic significance of infrastructure• Potentially high multiplier effects from multi-
billion investment projects – boosts AD and jobs• Lack of infrastructure may discourage FDI• Increases the capital stock / productive potential
Examples of UK Government Supply-Side Policies
Privatisation of Royal Mail
Patent Box Incentive
Modern Apprenticeships
Welfare Caps / Reforms
Shale Gas Tax Cuts
Corporation Tax Cuts
National Infrastructure
Plan
Launch of Green Investment
Bank
To what extent could supply side improvements improve UK competitiveness?
Knowledge Applicatio
n
•Refer to supply side problems that raise UK business costs and restrict competitiveness
Analysis
•Identify supply side policies and explain how they might work. Use an AS/AD diagram to show the impact of changes in AS on real income, and especially the price level.
Evaluation
•Discuss the problems and limitations of supply side policies. Introduce other factors that influence competitiveness, such as the exchange rate.
09/04/2023
Loads of Revision Help on Twitter: @tutor2u_econ