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Economics IGCSEPDF 92
118 pagesrevision 46932
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An: Contractionary fiscal policy (reducing G or raising T) reduces inflation by lowering
AD, but this simultaneously raises unemployment and slows growth (the Phillips Curve
trade-off).
E: Supply-side policies are preferred because they can achieve lower inflation and
higher output simultaneously, avoiding the negative trade-off of fiscal contraction.
P1: Time LagsandHighCost
○ K: Supply-sidepolicies(e.g.,buildinganew airport or reforming education)
typicallytakemany yearstohavetheirfull effect on AS.
○ An: Theyareoftenveryexpensiveforthe government to implement, potentially
requiringhighborrowingorlargecutsinspending elsewhere.
P2: Negative EquityConsequences
○ K: Policieslikecuttingincometaxorderegulation may disproportionately benefit
the wealthyandlargefirms.
○ An: This canleadtoincreasedincome inequality and potential social unrest,
conflictingwiththegovernment'saimofincome redistribution.
P3: Political Resistance
○ K: Policiessuchasprivatisationorreducing trade union power often face strong
resistancefromvestedinterestsandworkers.
○ An: This politicaloppositioncandelayorhalt implementation, making the policy
unreliable.
EVALUATION:
○ While supply-sidepoliciesareessentialfor long-term growth and efficiency, they
are unsuitable forcorrectingimmediate macroeconomic problems (like a
sudden recessionorinflationspike)dueto their long time lags and initial cost.
4.6 Economic Growth
Q5.3: Drawbacks of Supply-Side Policies (8 Marks)