Supply-side policies' effectiveness depends on economic slack and policy type

Steps:

• Supply-side policies shift long-run aggregate supply (LRAS) right to boost potential output.
• Below full employment, slack allows actual output to rise without inflation.
• At full employment, policies raise potential output but risk short-run inflation over output gains.
• Abolition of minimum wage lowers costs but fails to address skill or structural unemployment barriers.

Why A is correct:

• Below full employment, labor market has excess supply; abolishing minimum wage reduces wages but does not increase employment or output significantly, as per downward-sloping labor demand curve.

Why the others are wrong:

• B: Training enhances human capital and productivity, shifting AS right effectively with slack.
• C: Infrastructure investment increases capital stock and capacity, raising potential output even at full employment.
• D: Income tax reduction boosts work incentives and labor supply, enabling output growth at full employment.

Final answer: A