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IAI Actuarial Core Principles · Business Economics · Relationship between the government and the individual firm

Which of the following is an example of a supply-side policy intended to improve the long-run performance of firms?

Investment in skills and vocational training is a supply-side policy because it raises labour productivity and long-run productive capacity. Rate cuts, transfers, devaluation and extra government purchases mainly influence aggregate demand in the short run.

  1. AA temporary cut in the repo rate to stimulate consumer spending
  2. BAn increase in government transfer payments to raise aggregate demand
  3. CInvestment in vocational training and skill development programmes to raise labour productivityCorrect
  4. DA devaluation of the rupee to boost export demand
  5. A one-year rise in government purchases of goods

Explanation

Supply-side policies aim to raise the economy's productive capacity, for example through education, training and deregulation. The other options are demand-side monetary, fiscal or exchange-rate measures.

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