Supply-side policy boosts long-run economic capacity

Steps:

• Recall supply-side policy focuses on enhancing production efficiency and resources.
• Compare to demand-side policy, which targets aggregate demand via spending or taxes.
• Eliminate options linked to demand management or monetary/exchange tools.
• Select the option matching supply-side goals like innovation, education, or deregulation.

Why D is correct:

• Supply-side policy shifts long-run aggregate supply rightward by increasing productive potential, per macroeconomic models.

Why the others are wrong:

• A describes demand-side policy, which stimulates total demand to close output gaps.
• B relates to exchange rate policy, not supply-side interventions.
• C pertains to monetary policy, adjusting interest rates to influence borrowing and spending.

Final answer: D