CHAPTER 16 -- Part 2: SUPPLY-SIDE POLICY: SHORT-RUN
Unemployed workers may not have the skills employers need.
Unemployment is caused by an increase in output.
ThePhillips curve trade-off will be worse if the skills gap between unemployed workers and the requirements of emerging location is larger.
There is a skills gap available jobs.
This is a supply-side imperative.
Structural unemployment is reduced by investments in human capital.
Tax credits are available to employers who offer more training.
The employer's after-tax cost of training is reduced by these credits.
The incentives for employer-based training were proposed by President Clinton.
Employers who don't provide training directly would have to pay into a public training fund.
The "play-or-pay" approach would force employers to invest in their employees.
Bush encouraged school systems to be more competitive.
Vouchers could be used to allow students to attend the school of their choice.
Schools would have to offer services that attracted students with vouchers.
Vouchers wouldn't be enough for those schools that didn't compete well.
President Clinton was in favor of a more conventional approach.
He urged Congress to allocate more funds to the school system, particularly programs for preschoolers, like Head Start.
Vouchers might increase school quality, but they should only be used in public schools.
He increased federal spending on education.
The No Child Left Behind program increased school accountability for human capital development.
A quick AS-curve shift is not generated by any of these tools.
Improvements in labor productivity are likely to come later.
Race, gender, or age are not the only factors that affect the mismatch between employed workers and jobs.
Discrimination can create an artificial barrier between job seekers and openings.
Reducing discrimination barriers should shift the aggregate supply curve to the right.
Equal opportunity programs are an extension of the supply-side approach to policy.
Critics point out the risks of government regulation of hiring decisions.
The laws that forbid discrimination should be enforced.
Aggressive affirmative action programs that require employers to hire specific numbers of women or minority workers limit productive capabilities and can lead to excessive costs.
Welfare programs make it harder for workers to take available jobs.
Transfer recipients must give up some or all of their welfare payments when they take a job, to individuals for which no current goods or services are which makes working less attractive and reduces the number of available work exchanged, like Social Security, exchanged, like Social Security ers.
The leftward shift of the aggregate supply curve is a result of the net result.
Congress has time limits on how long people can get welfare benefits.
The act required recipients to engage in job search and training while still receiving benefits.
The 1996 reforms had a big effect on recipients.
Between 1996 and 2001 over 5 million adults left welfare.
The AS curve was shifted by half of the ex-welfare recipients entering the labor force.
We don't have to eliminate all welfare programs because we know that income transfers reduce aggregate supply.
Important social needs are served by welfare programs.
Aggregate supply will be affected by the structure of the programs.
The effect on aggregate supply can be significant with over 60 million Americans receiving income transfers.
The shape and position of the aggregate supply curve are affected by government intervention.
The flexibility of producers is limited by these regulations.
Government regulation raises production costs.
The higher costs are a result of required changes in the production process, as well as the expense of monitoring government regulations and filling out endless government forms.
The total costs of regulation are estimated by an economist at the Rochester Institute of Technology.
The aggregate supply curve is shifted to the left by the added costs of production.
Government intervention in factor markets increases the cost of supplying goods and services.
Minimum wage laws are used a lot in factor market regulation.
The minimum wage was 25 cents per hour under the Fair Labor Standards Act.
Congress has continually increased the coverage of that act and the minimum wage.
Ensuring workers a decent standard of living is the goal of the minimum wage law.
The law has other effects.
It limits the ability of employers to hire additional workers by prohibiting them from using lower-paid workers.
Teenagers may not have enough skills or experience to be paid the federal minimum wage.
Employers may have to rely on more expensive workers.
The issue is not whether minimum wage laws serve any social purposes, but how they affect macro outcomes.
Minimum wage laws make it more difficult to achieve full employment with stable prices.
Government fringe benefits have the same effect on aggregate supply.
The Family and Medical Leave Act requires all businesses with 50 or more employees to grant leaves of absence for up to 12 weeks.
The costs of recruiting and training temporary replacements must be paid by the employer.
The General Accounting Office said it would add $700 million to payroll costs.
Producers are less willing to supply output at any given price level due to the added payroll costs.
Government regulation of factor markets goes beyond wages and benefits.
Standards for workplace safety and health are set by the government.
The Occupational Safety and Health Administration (OSHA) issued new rules in 2000.
Employers would have been required to redesign their workplace to accommodate individual workers.
The rules would have required employers to pay more for health care.
According to OSHA, the new regulations would cost employers $4.5 billion a year.
Congress withdrew the new ergonomics rules before they took effect because of concern over the implied upward shift of aggregate supply.
The same regulations are imposed on product markets.
Various agencies regulate the output and prices of transportation services.
The Civil Aeronautics Board decided which routes airlines could fly and how much they could charge.
The same kind of power has been given to trucking, interstate bus lines, and railroads by theICC.
The Federal Maritime Commission established the routes, services, and prices for ships.
The regulations made it difficult for producers to respond to increased demand.
The prices were too high and the rate of output was too low.
Problems continue to inflate trucking costs.
All but eight states have limits on the routes, the loads and the prices of trucking companies.
The regulations promote inefficient transportation and protect profits.
A family of four would pay about $128 a year for the economy's net cost.
The price of taxicabs is regulated by many cities and counties.
The date protects consumers from dangerous products.
The FDA sets health standards for the content of certain foods.
The FDA sets standards regulatory costs.
The goal of FDA regulation is to minimize health risks.
Real costs are included in the FDA standards.
The tests for new drugs take a long time.
It can take years of effort to get a new drug approved.
The aggregate supply is an assessment of how goods are shifted to the left.
There are many examples of government regulation.
The EPA regulates auto emissions, the discharge of industrial waste, and A T water pollution.
Foreign imports are restricted by the U.S. Congress.
Firms can't increase their output or advertise their products because of the FTC.
The regulatory activities are beneficial.
We get safer drugs, cleaner air, and less deceptive advertising as a result of such regulation.
The costs must also be considered.
Direct and indirect costs are imposed on regulatory activities.
The benefits received must be compared to the costs.
Regulatory costs are too high according to supply-side economists.
The shape and position of aggregate supply can be influenced by government regulation.
Both factor and product markets are affected by trade flows.
In factor markets, U.S. producers buy raw materials from foreign suppliers.
The cost of U.S. production is increased by tariffs on imported goods.
The U.S. aggregate supply curve is constrained by regulations that make foreign inputs more expensive.
The cost of U.S.-produced soda, cookies, and candy increases because of the quota on imported sugar.
U.S. consumers have had to pay over $2 billion in higher prices because of one trade barrier.
Product markets are affected by the same kind of trade barriers.
Foreign producers would be able to supply products to U.S. consumers with completely unrestricted trade.
Foreign suppliers would act as a safety valve if the U.S. producers were approaching capacity.
Foreign suppliers help flatten out the aggregate supply curve by increasing the quantity of output available at any given price level.
Half of all U.S. imports are still subject to tariffs despite the success of the North American Free Trade Agreement.
Aggregate supply is still constrained by nontariff barriers.
In the battle over Mexican trucking, this was evident.
The entry of Mexican trucking companies into the United States was protested by the U.S. labor unions and trucking companies.
Immigration policy is a global supply-side policy lever.
There are skill shortages in the U.S.
Even faster relief is available in the large pool of foreign workers.
Congress increased the quota for software engineers and other high-tech workers in 2000.
The goal was to relieve the skill shortage in high-tech industries and the cost pressures that were increasing the slope of the aggregate supply curve.
Temporary visas for farm workers help prevent cost-push inflation.
Congress can change the shape and position of the AS curve by regulating the flow of immigrant workers.
The market for producers looking for new sales opportunities was enlarged by the interstate highway system.
International markets and factors of pro facilitate market exchanges have been made possible by improved air institutional systems.
The process of supplying goods and services would be more expensive if interstate highways and international airports were not there.
It is easy to take infrastructure for granted.
U.S. producers have rushed into China, Russia, and eastern Europe to find new profit opportunities.
Even simple communication is hard in places where internet access and telephones are rare.
Business facilities and accommodations are not always plentiful outside the major cities.
There aren't many established clearinghouses for marketing and labor markets.
It can be difficult to get started from scratch.
The United States has a well-developed infrastructure, but it could be improved.
More airports, faster rail systems, and space-age telecommunications networks are needed to repair roads and bridges.
Spending on this kind of infrastructure will increase demand and shift supply.
It's difficult to single out any one AS shift factor as decisive because of the many factors that affect aggregate supply.
Expectations must again be taken into account.
Expectations play an important role in production and investment decisions.
Producers will invest in new plant, equipment, and software if government policies are more business friendly.
Increasing government regulation or higher taxes deters investors from expanding production capacity.
Expectations affect the shape of the AS curve because investment is always a bet on future economic conditions.
The nation's production possibilities are affected by the infrastructure of transportation, communications, and environmental systems.
We have to wonder if the infrastructure will meet the needs of the economy in the future.
It will be difficult to increase output if it doesn't.
Our ability to compete in world markets would be impaired by inadequate infrastructure.
Infrastructure investment is declining.
The United States has over $2 trillion worth of public, nonmilitary infrastructure.
In the 70s and 1980s, investment in public infrastructure slowed down.
The rate of infrastructure investment peaked in the 1960's.
It fell to a low of about half a percent of GDP in the early 1980s.
The aggregate supply curve leftward has been shifted by crumbling infrastructure.
Some people disagree that the nation's infrastructure is crumbling.
Accidents on the roads, rails, and in the air have been decreasing.
Highway traffic is increasing at a rate of 2.5 percent a year, while airline passenger traffic is increasing at a rate of 4 percent a year.
Better transportation systems are needed to accommodate this growth.
Failure to expand the infrastructure could be costly.
There is a lot of labor resources left to be used.
4 billion gallons of gasoline is wasted annually by cars stuck on congested highways.
Similar costs are imposed by delays in air travel.
The FAA says air travel delays increase airline operating costs by over $2 billion a year.
There is a high opportunity cost in forgone business transactions.
Lower productivity, reduced output, and higher prices are all reflected in these costs.
Congress voted to accelerate infrastructure spending to alleviate constraints on aggregate supply.
In this decade, federal spending has increased to over $600 billion.
Magnetic levitated trains that can travel at 300 miles per hour are being researched.
Cars and highways with radar, monitors, and computers can be tested to reduce congestion and accidents.
More spending on sewage systems, access to space, modernization of the postal service, and construction of more hospitals, prisons, and other buildings were authorized by other legislation.
Both short and long-run economic outcomes can be improved by these infrastructure improvements.
They create more potential for economic growth without inflation.
Fiscal and monetary policies want full employ supply curve to the right.
Marginal tax rates are a major concern of supply-side responses as reflected in the price and output decisions economists.
Extra work is discouraged by high tax rates.
Shifting aggregate supply to the right is the market's response to shifts in demand.
The tax elasticity of supply is used to measure the response of a curve.
Changes in tax rates are supplied by a trade-off tity if the AS curve slopes upward.
The short-run shifts curve shows that the trade-off is low.
The LO2 of the aggregate supply curve is small.
Policy tools include workers' training combination of inflation and unemployment.
Government regulation can raise the cost of production.
Supply-side policies attempt to alter price and output costly restrictions on price and output behavior.
They will shift the aggregate to the right if they succeed.
The AS curve is leftward by trade barriers.
Investments in infrastructure such as the cost of imported inputs and the price of imported portation systems facilitate market exchanges and products.
Aggregate production possibilities are increased by lowering trade barriers.
Why would prices go up when demand goes up by 50 percent?
Why would Democrats oppose a capital-gains tax cut?
There are numerical and graphing problems in the Student Problem Set at the back of the book.