Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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Supply-side economics focuses on improvements through what means?

  1. Increased government regulations

  2. Tax increases on corporations

  3. Enhancements in the way firms and markets operate

  4. Direct cash transfers to consumers

The correct answer is: Enhancements in the way firms and markets operate

Supply-side economics centers around the principles of enhancing economic growth by improving the conditions for producers, such as firms and markets. This approach advocates for measures that promote productivity, encourage investment, and stimulate job creation. The concept emphasizes the importance of allowing businesses the freedom to operate more efficiently. This can involve reducing regulatory burdens, implementing tax cuts for corporations, and creating a business-friendly environment that incentivizes firms to expand their operations. By focusing on how firms can operate more effectively, supply-side economics seeks to increase overall economic output and drive growth through the supply side of the economy. In contrast, the other options presented do not align with the core tenets of supply-side economics. Increased government regulations could stifle business growth rather than enhance it. Tax increases on corporations would likely discourage investment and productivity, which are counterproductive to the supply-side agenda. Meanwhile, direct cash transfers to consumers are more aligned with demand-side strategies, focusing on increasing consumer spending rather than enhancing the efficiency of producers.