IAI Actuarial Core Principles · Business Economics · Impact of macroeconomic policies on businesses
Which of the following is best classified as a supply-side policy intended to raise the long-run productive capacity of the Indian economy?
A government-funded skills training programme is the supply-side policy. It improves labour quality and productivity, raising potential output and shifting long-run aggregate supply. The other options mainly influence aggregate demand through interest rates, spending, the exchange rate or credit conditions.
- AA cut in the repo rate to stimulate borrowing
- BA government-funded programme to train workers in skills demanded by manufacturersCorrect
- CA temporary rise in government spending on subsidies for consumers
- DA devaluation of the rupee to boost export demand
- A rise in the cash reserve ratio to curb credit growth
Explanation
Supply-side policies aim to raise potential output by improving the quantity or quality of factors of production. Training raises labour productivity and shifts long-run aggregate supply. The repo rate, spending, exchange rate and CRR are demand-side or monetary tools that mainly work on aggregate demand.
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