Supply-side policies boost productive capacity

Steps:

• Define supply-side policies as measures increasing long-run aggregate supply through efficiency, incentives, or labor improvements.
• Assess A: Controlling unions reduces wage rigidity, encouraging labor supply.
• Assess B: Higher indirect taxes raise production costs, contracting supply.
• Confirm C and D: Privatisation enhances efficiency; skills training boosts productivity.

Why B is correct:

• Supply-side policies expand output potential; higher indirect taxation increases costs, shifting aggregate supply leftward per the AS-AD model.

Why the others are wrong:

• A: Limits union power to lower wage costs, increasing labor supply.
• C: Privatisation improves firm incentives and efficiency.
• D: Skills training raises human capital, shifting supply curve right.

Final answer: B