Which of the following is consistent with the supply-side theories?
A)The Bank of Canada should use monetary policy only to control the rate of inflation.
B)The government should promote full employment and production.
C)The government should periodically increase the minimum wage and unemployment insurance benefits.
D)Tax cuts influence the aggregate supply significantly.

Question

Quizplus · Accepted Answer

Supply-side theories emphasize the importance of lowering taxes on businesses and individuals in order to increase investment and production, which in turn increases aggregate supply. Therefore, tax cuts are consistent with supply-side theories. Option A is more consistent with demand-side theories, which suggest that monetary policy can be used to stimulate demand and increase production. Option B is a general policy goal that may be consistent with both supply-side and demand-side theories. Option C is more consistent with demand-side theories that focus on supporting workers and increasing demand through increased spending power.

Which of the Following Is Consistent with the Supply-Side Theories