Evaluate the possible impact on economic performance that may result from a government decision to bring cost-push inflation under control. (15 marks)

    When inflation is due to being cost-push, the government uses supply-side policies, which manipulate and influence the supply curve in the long term, to increase the level of aggregate supply, as mentioned in part a. These are policies aim to increase the potential output of the economy through an increase in the quantity or quality of the factors of production. These can be either market-based or interventionist. Interventionist policies which directly involve the government in the market. These include investments into human capital, research and development, provision and maintenance of infrastructure as well as support for business policies.  Interventionist policies are considered to be essential for the economy and would therefore only have positive effects on the economic performance as they would increase the quality of the goods. Market-based means that the government gives the people within the market greater incentive to increase productivity and output. These include reductions in household income taxes and corporate taxes, privatisation, deregulation, a reduction in trade union power, eliminating minimum wages, reducing unemployment benefits, as well as policies to increase competitiveness. These policies, while able to increase output and economic growth which are positive outcomes, they can also create negative outcomes. These can include decreased standards of living of the low income earners, increased inequality as a result as well as the negative impacts on the environment that result from the increase in productivity.