When supply-side policy is successful in raising equilibrium real Gross Domestic Product (GDP), the reason is that the policy generates

Question

Quizplus · Accepted Answer

Supply-side policy aims to increase the potential output of the economy by increasing productivity, improving infrastructure, and encouraging investment. This leads to an increase in aggregate supply, which can shift the production possibilities frontier outward and increase the equilibrium real GDP. Therefore, the correct answer is B - an increase in aggregate supply. The other choices are incorrect as they do not describe the mechanism by which supply-side policy works.

When Supply-Side Policy Is Successful in Raising Equilibrium Real Gross