Supply-side policy tools to deal with stagflation include:
A) A reduction in government spending.
B) A decrease in the discount rate.
C) A reduction in tax rates.
D) An increase in the reserve requirement.

Question

Quizplus · Accepted Answer

A reduction in tax rates would increase disposable income and incentivize firms to produce more, which would increase aggregate supply and potentially lower prices, while also increasing output and potentially lowering unemployment. A reduction in government spending or an increase in reserve requirements would likely decrease aggregate demand and potentially worsen the inflationary pressures of stagflation. A decrease in the discount rate would primarily affect monetary policy and would not directly address the supply-side factors causing stagflation.

Supply-Side Policy Tools to Deal with Stagflation Include