Supply-Side Policy
58 questions· page 1 of 6
The diagram shows aggregate demand (AD) and long-run aggregate supply (LRAS) with X as the initial equilibrium.
Which combination of policy and new final equilibrium point is correct?
Options
| policy | new final equilibrium point | |
|---|---|---|
| A | increased direct taxation | F |
| B | increased government spending on infrastructure | G |
| C | appreciation of the exchange rates | H |
| ** | D** | decreased interest rates |
A government cuts income tax.
Why might this be seen as an example of a supply-side policy?
Options
A Real incomes are increased.
B The costs of businesses are reduced.
C The opportunity cost of unemployment has increased.
D The standard of living has improved.
A government decides to use supply-side policy to increase long-run aggregate supply (LRAS).
What is the most likely reason why this policy tool will not lead to a fall in the price level?
Options
A Aggregate demand will also increase.
B Labour productivity levels will increase.
C Workers will save any extra wages they earn.
D Workers will spend any extra wages on imports.
What is not an example of an expansionary supply-side policy?
Options
A a reduction in government spending on training
B an increase in support for technological improvement
C a reduction in payments to the unemployed
D an increase in privatisation of industry
A country has a persistent deficit on the current account of its balance of payments.
What is most likely to improve the situation in the long run?
Options
A a lowering of the level of import duties
B a reduction in the level of income tax
C the introduction of expansionary monetary policy
D the use of grants to encourage new investment by firms
Which supply-side policy will encourage new entrepreneurs?
Options
A an increase in government subsidy to small firms
B an increase in the national minimum wage
C an increase in the power of trade unions
D an increase in the tax on business profits
Which statement about supply-side policies is correct?
Options
A They solve the problem of demand deficient unemployment.
B They do not involve an opportunity cost.
C They reduce unemployment but do not affect the price level.
D They may reduce regional unemployment.
A government reduces its expenditure on workplace training, increases the level of indirect taxes and reduces the rate of interest it pays on government debt.
How would these government macroeconomic policies be categorised?
Options
| supply-side | fiscal | monetary | |
|---|---|---|---|
| A | con | con | exp |
| B | exp | con | con |
| C | con | exp | exp |
| D | exp | exp | con |
key
con = contractionary
exp = expansionary
A government reduces the benefits that it pays to unemployed workers to increase the incentive to work.
Which types of macroeconomic policies are being used?
Options
| fiscal policy | monetary policy | supply-side policy | |
|---|---|---|---|
| A | ✓ | ✗ | ✗ |
| B | ✓ | ✓ | ✗ |
| C | ✓ | ✗ | ✓ |
| D | ✗ | ✗ | ✓ |
A government increases the basic rate of income tax to finance additional spending on apprenticeships and training.
Which types of macroeconomic policy are being used?
Options
| fiscal policy | monetary policy | supply side policy | |
|---|---|---|---|
| A | ✓ | ✓ | ✓ |
| B | ✓ | ✓ | ✗ |
| C | ✓ | ✗ | ✓ |
| D | ✗ | ✓ | ✓ |
key
✓ = used
✗ = not used