QUESTION

Easy

Economy

Prelims 2021

Which among the following steps is most likely to be taken at the time of an economic recession?

Select an option to attempt

Explanation

During an economic recession, the goal is to stimulate economic activity and consumer spending.

A. Cut in Tax Rates & Increase in Interest Rates. Cutting taxes puts more money in people's pockets, potentially increasing spending. However, raising interest rates discourages borrowing and investment, potentially hindering economic growth. This combination could have offsetting effects.

B. Increase in Expenditure on Public Projects. This injects money into the economy through government spending, creating jobs and boosting demand for goods and services. This is a typical measure during recessions.

C. Increase in Tax Rates & Reduction of Interest Rates. Increasing taxes reduces disposable income, dampening consumer spending. Lowering interest rates encourages borrowing and investment, but it might not be effective if there's low confidence in the economy.

D. Reduction of Expenditure on Public Projects. This reduces government spending, taking money out of circulation and potentially worsening the recession.

Therefore, the most likely step during an economic recession is (B) Increase in expenditure on public projects

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