ACCA Applied Knowledge · Business and Technology · Macroeconomic factors
A government privatises a state-owned rail operator by selling it to private investors. Which of the following is the most likely reason for this being classed as a supply-side measure?
Privatisation is a supply-side measure because transferring ownership to private investors is expected to improve efficiency through market incentives and the profit motive, raising output quality and productivity. It is not mainly about reducing demand, capping prices or increasing government control.
- AIt directly lowers the level of aggregate demand in the economy
- BIt fixes a maximum price for rail tickets across the country
- CIt aims to improve efficiency by exposing the operator to market incentives and profit motivesCorrect
- DIt increases the government's control over the pricing of services
Explanation
Privatisation is a supply-side measure because private ownership is expected to create profit incentives and efficiency gains, improving the supply of goods and services. It does not primarily reduce demand, and price caps or greater state control are the opposite of a market-based approach.
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