Explain how the use of supply-side policies might encourage greater domestic competition and improve the international competitiveness of a country.

Using real-world examples, evaluate the view that the use of interventionist supply-side policies is the most effective way of reducing a country’s rate of unemployment.

Marks should be allocated according to the paper 1 markbands for May 2022 forward, part A.

Answers may include:

• Terminology: supply-side policies, international competitiveness, competition
• Explanation: of how the use of market-based supply-side policies such as privatization, deregulation, trade liberalization and anti-monopoly legislation and interventionist supply-side policies such as government spending on education and training, R&D and infrastructure might encourage greater competition; an explanation that international competitiveness may be improved as a result of the LRAS increasing and lowering the rate of inflation/the price level, hence making exports relatively cheaper
• Diagram: an AD/AS diagram showing a rightward shift of LRAS.

A maximum of [6] should be awarded if only one of the two goals in the question item is addressed.

Marks should be allocated according to the paper 1 markbands for May 2022 forward, part B.

Answers may include:

• Terminology: interventionist supply-side policies, unemployment
• Explanation: of the view in terms of the successful implementation of interventionist supply-side policies increasing the productive capacity of the economy, increasing the demand for labour in the long run and thus lowering the level of unemployment; such policies are also likely to increase AD
• Diagram: an AD/AS diagram to show LRAS being shifted to the right and/or AD shifting right
• Synthesis (evaluate): the supply-side policy applied depends on the type of unemployment, the limitations of using interventionist supply-side policy in reducing unemployment; interventionist policies compared with market-based supply-side policies; the potential benefits of alternative policies such as monetary and fiscal policies; consideration of “most effective”; overall assessment
• Examples: real-world examples of where governments have attempted to reduce unemployment using interventionist supply-side policies and/or other policies.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

N.B. It should be noted that definitions, theory and examples that have already been given in part (a), and then referred to in part (b), should be rewarded.

As the question requires an evaluation of the “most effective way”, a maximum of [12] should be awarded where no other policies are considered, as the question wouldn’t be fully addressed. For [13] or more the synthesis and evaluation must be effective and balanced and there must at least be some mention of alternative policies.

This question had many good answers, with the best responses looking at how interventionist supply-side policies, such as subsidies and grants to support research and development, along with education and training, could increase competition within domestic markets and make a country more internationally competitive. Some candidates approached this question from a market-based supply-side approach and looked at policy options like tax cuts, deregulation and privatization. It was important for students to focus their chosen supply-side policies on greater domestic competition and international competitiveness and the best answers did this effectively.

This question was generally well answered by students, with many considering interventionist supply-side policies such as education and training, employment subsidies, and direct state employment. Good answers considered interventionist supply-side policies in terms of the types of unemployment (frictional, structural, and demand deficient unemployment) and illustrated their response with an increase in LRAS and/or demand and supply for labour diagram. Similar to question 1, most students tried to support their answer with a real-world example. The very best answers effectively evaluated the use of interventionist supply-side policies but considered aspects such as the financial cost of the measures and how effectively they work.