What is the criticism of subsidies?
Prices in the euro area rose faster in the last two years than in the previous decade. Economists name several causes: higher energy costs, supply chain disruptions and strong demand after the pandemic. Governments responded with subsidies for households, while central banks raised interest rates. Critics of the subsidies argue that they support demand and may keep inflation higher. Supporters answer that without help many families could not pay their bills. Most economists agree that no single measure removes the problem quickly.
Answer and explanation
Correct answer: D. They support demand and may keep inflation higher
- Step 1: Critics say subsidies support demand and can keep inflation higher. Answer: They support demand and may keep inflation higher. Why not the others: The other criticisms are not mentioned.
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