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A-Level Economics · LRAS shift right (long-run growth) diagram question

EVALUATION: why is supply-side policy said to have NO TRADE-OFF — the closest economics comes to a free lunch?

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The diagram

The answer

Growth rises, unemployment falls, inflation falls and the trade position improves — all at once. Demand-side policy forces a choice — stimulate and risk inflation, cool inflation and risk unemployment. Shift LRAS right and all four objectives improve together. Demand-side policy always forces a trade-off: stimulate the economy and you risk inflation; cool inflation and you risk unemployment. Supply-side policy has no such trade-off — on this diagram output rises to Y₂, unemployment falls through the greater derived demand for labour, cost-push inflation falls to P₂, and cheaper exports improve the trade position. Four objectives, one shift. The honest counter is the EVALUATION: time lags, opportunity cost, and no guarantee the shift actually happens.

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