Supply-side policy to reduce inflation would focus on
A)Decreasing the money supply.
B)Decreasing the interest rates to encourage investment.
C)Increasing the incentives to produce goods and services.
D)Raising marginal tax rates to reduce aggregate demanD.Actions such as tax cuts and deregulation will increase AS,thereby leading to a reduction in inflation.

Question

Quizplus · Accepted Answer

Supply-side policies focus on increasing potential output and reducing costs of production. Increasing incentives to produce goods and services would encourage firms to produce more and thereby increase the supply of goods and services, leading to a reduction in inflation. Decreasing the money supply (option A) is a demand-side policy that aims to reduce aggregate demand to curb inflation, while decreasing interest rates (option B) is a monetary policy tool that affects borrowing and spending but may not necessarily target supply-side factors. Raising marginal tax rates (option D) would reduce incentives to work and produce, potentially decreasing the supply of goods and services and leading to higher prices. Therefore, option C is the most appropriate choice for reducing inflation through supply-side policies.

Supply-Side Policy to Reduce Inflation Would Focus on