ACCA Applied Knowledge · Business and Technology · Macroeconomic factors
Which of the following is an example of a supply-side policy used by a government to improve the long-run productive capacity of the economy?
Funding vocational training is a supply-side policy because it raises workforce skills and productivity, increasing the economy's long-run productive capacity. Tax rises, interest rate changes and higher welfare spending work mainly by influencing aggregate demand, so they are demand-side policies.
- AIncreasing the standard rate of income tax to reduce consumer spending
- BFunding vocational training programmes to improve the skills of the workforceCorrect
- CRaising the central bank base interest rate to control inflation
- DIncreasing government spending on welfare benefits to boost demand
Explanation
Supply-side policies aim to increase the economy's capacity to produce goods and services, for example by improving labour skills through training. The other options are demand-side measures (fiscal or monetary) that influence aggregate demand rather than productive capacity.
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