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.

Question

Quizplus · Accepted Answer

Supply-side policies are designed to increase the economy's ability to produce goods and services. By increasing the incentives to produce, firms are able to produce more at a lower cost. This increase in productivity will help to reduce inflationary pressures in the economy by increasing the supply of goods and services, which will help to keep prices stable. Decreasing the money supply and increasing the interest rates are demand-side policies that can be used to control inflation by reducing aggregate demand, and raising marginal tax rates could reduce consumer spending, which would also reduce demand. However, these policies do not directly address the root cause of the inflationary pressures, which is the lack of supply of goods and services.

Supply-Side Policy to Reduce Inflation Would Focus on