Would I Recommend an Interventionist or a Non-Interventionist Approach to Supply Side Policy in Order to Achieve the Four Key Macroeconomic Objectives?
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Would I recommend an interventionist or a non-interventionist approach to supply side policy in order to achieve the four key Macroeconomic objectives?
Four key Macroeconomics objective:
Low and steady inflation
Low unemployment
High economic growth
The balance of payments on the current account
Interventionism is where the governments are involved in the regulation of markets through government policy rather than leaving the markets to regulate themselves. Supply side economists believe that free markets promote economic efficiency and government intervention impairs economic efficiency. There are many ways in which they do this.
One way is labour market policies such as welfare benefits. Workers would be less likely to accept low paying jobs if the minimum is equal to the pay that they would receive. This means that there would be a lower level of aggregate supply as most people in low paying jobs would prefer to be unemployed as they would receive the same amount of money but for no work. Instead of having these benefits, the government should reduce the amount of tax that people who take on lower paying jobs should have to pay.
Welfare benefits can also lead low earning workers into the poverty trap. This is when a low earning individual receives a small promotion but not enough to keep their family going without benefits. As soon as they receive their rise, welfare benefits