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IAI Actuarial Core Principles · Business Economics · Impact of macroeconomic policies on businesses

Which of the following is a likely limitation of supply-side policies when used to improve business competitiveness?

A key limitation is that supply-side policies take a long time to deliver results and can widen income inequality. Training, infrastructure and structural reforms work slowly, and market-oriented measures may disadvantage some workers or groups, even though they tend to lower costs and raise capacity.

  1. AThey always raise inflation immediately
  2. BThey reduce potential output over time
  3. CThey usually take a long time to show results and may widen income inequalityCorrect
  4. DThey work only by increasing government spending
  5. They have no effect on firms' costs

Explanation

Supply-side reforms such as education, infrastructure and labour market changes take years to affect productivity, and tax cuts or deregulation can favour higher earners or displace workers. They do not raise inflation immediately, and they typically lower costs rather than leave them unaffected.

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