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Economics (AS & A Level) · Oct / Nov 2024 · Paper 13 · Question 21

9708Supply-side policy

Supply-side policy often has fiscal consequences. Which statement is not correct?

  1. AIncreased government spending supporting technical progress has beneficial long-term supply-side effects but may have short-term inflationary consequences.
  2. BIncreased government expenditure on training increases a country's long-run aggregate supply (LRAS) and also has an expansionary effect on aggregate demand (AD).
  3. CReduced government infrastructure spending reduces an economy's LRAS and has a short-term expansionary effect on AD.
  4. DReduced rates of tax on higher incomes increases an economy's LRAS and has an expansionary effect on AD.

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Correct answer: C. Reduced government infrastructure spending reduces an economy's LRAS and has a short-term expansionary effect on AD.

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