Labour Productivity Boosts Supply to Curb Inflation

Steps:

• Identify inflation causes: demand-pull (excess demand) or cost-push (rising costs).
• Evaluate options for reducing aggregate demand or increasing supply without raising prices.
• Check demand-side effects: saving, unemployment, and import taxes influence spending or costs.
• Assess supply-side: productivity improves output efficiency, lowering unit costs.

Why C is correct:

• Increased labour productivity shifts the aggregate supply curve rightward, raising output and lowering price levels per the AS-AD model.

Why the others are wrong:

• A: Decreasing consumer saving boosts spending, increasing aggregate demand and demand-pull inflation.
• B: Decreasing unemployment raises incomes and consumption, shifting aggregate demand right and fueling inflation.
• D: Increasing taxes on imports raises production costs, causing cost-push inflation via higher input prices.

Final answer: C