Which statement is consistent with the supply-side theories?
A) When there is a recession, the Bank of Canada should decrease the money supply.
B) A shift in aggregate supply leads to a permanent increase in the natural rate of output.
C) The government should periodically increase the minimum wage and unemployment insurance benefits.
D) Aggregate demand does not shift in the short run.

Question

Quizplus · Accepted Answer

Supply-side theories focus on factors that affect aggregate supply such as technology, education, and incentives for work. They argue that a shift in aggregate supply leads to a permanent increase in the natural rate of output. Option A is inconsistent with supply-side theories as it focuses on the demand side of the economy. Option C is also inconsistent as supply-side theories advocate for reducing government intervention and increasing incentives for work rather than increasing benefits. Option D is incorrect as aggregate demand can and does shift in the short run.

Which Statement Is Consistent with the Supply-Side Theories