IAI Actuarial Core Principles · Business Economics · Impact of macroeconomic policies on businesses
Which of the following is a supply-side policy instrument, as opposed to a demand-management instrument, for achieving the objective of sustainable economic growth?
Investing in vocational training and labour market reforms is a supply-side instrument because it raises productive capacity and productivity, shifting long-run aggregate supply outward. The other options change aggregate demand through interest rates, taxes, transfers or the money supply.
- AReducing the repo rate to stimulate borrowing
- BIncreasing government transfer payments to households
- CInvesting in vocational training and labour market reforms to raise productivityCorrect
- DCutting indirect taxes temporarily to lift consumption
- Increasing the money supply through open market purchases
Explanation
Supply-side policies aim to raise potential output by improving productivity, skills and market flexibility. The other options work by changing aggregate demand through monetary or fiscal levers, and the temporary tax cut and transfers act on consumption.
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