Which of the following would be categorized as a supply-side measure ?
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Answer: B. Investment tax credits for businesses to encourage investment
Explanation
Investment tax credits reduce the cost of capital equipment and encourage business investment. Encouraging capital formation expands an economy's long-run productive capacity and aggregate supply. Supply-side policies focus on incentives that stimulate production and long-term economic growth. Supply-side economic policies aim to shift aggregate supply outward through tax incentives and deregulation. Investment tax credits directly subsidize expenditures on new machinery, plants, and technology. Capital accumulation enhances worker productivity and increases potential gross domestic product.
Governments implement investment incentives during economic slowdowns to boost business confidence. Supply-side measures complement monetary policy by targeting the productive side of the economy. Long-term prosperity relies on sustained business investment in modern plant and equipment. Increasing minimum wages boosts consumer spending, acting as a demand-side policy measure. Import restrictions alter trade patterns but do not represent broad supply-side investment incentives. Increasing government spending stimulates aggregate demand rather than focusing on supply-side capacity.
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Q1. Which of the statements concerning taxation is accurate ?
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Answer: D. A permanent change in taxes has a greater effect on aggregate demand than a temporary change in taxes.
Permanent tax changes alter consumer permanent income significantly more than temporary adjustments. Larger changes in permanent income prompt substantial shifts in consumer spending and aggregate demand. Temporary tax c...
Q2. Which of the following taxes can be justified by the benefits principle of taxation ?
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Answer: A. All these answers can be supported by the benefits principle of taxation
The benefits principle links tax liabilities directly to benefits received from services. Tolls for roads, progressive taxes for defense, and property taxes for courts apply. All listed examples can be justified under va...
Q3. Which of the following facts about the circular-flow model is correct ?
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Answer: D. The factors of production are owned by households
Households own the factors of production including labor, land, and capital resources. Households sell factor services to firms in exchange for wages, rent, interest, and profit income. Factor ownership provides househol...
Q4. Which of the following will NOT prompt a shift in the demand curve for compact discs ?
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Answer: B. A change in the price of compact discs
A change in a good's own price causes consumers to slide along the existing demand curve. Movements along demand curves represent changes in quantity demanded rather than shifts in demand. Demand curve shifts occur only...
Q5. Which of the following measures would be classified as a supply-side policy ?
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Answer: B. investment tax credits for businesses to encourage investment
Investment tax credits stimulate business capital formation and productive capacity. These measures directly target aggregate supply by encouraging firm investments. Supply-side policies focus on boosting output capabili...
Q6. Which of the following statements about the foreign exchange market is true ?
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Answer: A. An increase in Pakistan’s net capital outflow increase the supply of rupees and the rupees depreciate
Higher net capital outflow means domestic residents purchase more foreign assets abroad. Purchasing foreign assets requires domestic investors to convert domestic currency into foreign currencies. Increased conversion in...