A supply-side policy approach in Figure 8.3,given AD₁ and AS₁,to achieve both lower prices and more output would be to A)Increase the growth of the money supply. B)Reduce marginal tax rates and government regulation in an effort to move AS₁ to AS₂. C)Wait until natural market forces establish full employment. D)Increase aggregate spending.

Question

Quizplus · Accepted Answer

A supply-side policy approach would focus on increasing the productive capacity of the economy by reducing barriers to production, such as taxes and regulations. This would shift the long-run aggregate supply curve to the right (from AS₁ to AS₂), allowing for lower prices and more output. Increasing the money supply or aggregate spending would be demand-side policies, which would not necessarily address the underlying supply-side factors limiting production. Waiting for natural market forces to establish full employment may not be feasible or efficient in the short-term. Therefore, reducing taxes and regulations would be the best choice to achieve the desired outcomes of lower prices and more output.

A Supply-Side Policy Approach in Figure 8