Interventionist policies: the government itself invests to raise capacity.
Five interventionist policies
Education and training
Better skills raise each worker's output. Singapore pays adults credits for courses (SkillsFuture, from 2015).
Health care
Healthier workers miss fewer days and work longer.
Research and development
New ideas and products: South Korea spends about 5% of GDP on R&D.
Infrastructure
Roads, rail, ports and broadband cut firms' costs. China built over 40,000 km of high-speed rail.
Industrial policy
Support for chosen industries: grants, cheap loans, training.
The points to remember
- Write it like this: "Interventionist policies raise the quantity and quality of the factors of production, so LRAS shifts right."
- They cost the government money, unlike most market-based policies.
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Better skills or better roads let the economy produce more.
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Remember it as: Invest in people, ideas and roads: LRAS right.
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The same spending works on both sides of the economy.
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The points to remember
- Now: government spending is part of AD, so AD shifts right.
- Later: the new skills or roads raise capacity, so LRAS shifts right.
Quick reminder
- Axes: Average price level up the side, Real GDP along the bottom
- Curves: AD, LRAS1 and LRAS2; AD1 and AD2 when the spending also raises AD
- Marks: PL1, PL2, Yf1 and Yf2
- Dots with dashed lines to the axes, an arrow for the shift
- No numbers, no title
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Paper 1 asked this in May 2025, as part (a) for 10 marks.
Explain how interventionist supply-side policies can affect both aggregate demand and aggregate supply.
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How the 10 marks are given
| Marks | What your answer needs |
|---|---|
| 9–10 | Theory fully explained, terms used correctly all the way through, the diagram included and fully explained |
| 7–8 | Theory explained, terms mostly right, the diagram included and explained |
| 5–6 | Theory partly explained, some terms, the diagram included |
| 1–4 | Theory only described or stated; few relevant terms |