ACCA Applied Knowledge · Business and Technology · Macroeconomic factors
A government wants to raise the long-term productive capacity of its economy and make markets work more efficiently, without relying on increased demand. Which of the following is a supply-side policy?
Funding vocational training and removing regulation that restricts labour mobility is a supply-side policy. It increases the economy's productive capacity and market efficiency. The other options act mainly on demand through tax cuts to spending or interest rates, so they are demand-side or monetary measures.
- ACutting the rate of income tax to stimulate consumer spending in the short term
- BFunding vocational training programmes and reducing regulation that restricts labour mobilityCorrect
- CRaising interest rates to reduce the growth in the money supply
Explanation
Supply-side policies aim to increase the economy's productive capacity and improve market efficiency, for example through better skills, flexible labour markets and less restrictive regulation. Cutting income tax mainly to boost consumer spending targets demand, and raising interest rates is a monetary policy tool that controls demand and inflation.
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