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UPSC Prelims 2021 Paper-1 📅 10 Oct, 2021

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

A
Cut in tax rates accompanied by increase in interest rate
B
Increase in expenditure on public projects
C
Increase in tax rates accompanied by reduction of interest rate
D
Reduction of expenditure on public projects
Result Summary
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APEDIA

UPSC Prelims
2021 • 10 Oct, 2021 • Paper-1
Which among the following steps is most likely to be taken at the time of an economic recession?
Correct Answer
Increase in expenditure on public projects
Fiscal Policy Strategy: During an economic recession, the primary objective is to boost aggregate demand and stimulate economic activity. Implementing an expans......
Ref/Book : UPSC Prelims 2021
Ref. Subject Economy
Chapter -
Ref. Topic Macroeconomics
Pg. No -
💡 Analysis & Explanation
Fiscal Policy Strategy ▼
During an economic recession, the primary objective is to boost aggregate demand and stimulate economic activity. Implementing an expansionary fiscal policy is the standard approach.
Public Spending Impact ▼
Increasing expenditure on public projects injects money directly into the economy, creates jobs, and generates income. This multiplier effect helps revive consumption and investment.
Evaluating Alternatives ▼
Raising interest rates or tax rates would further suppress spending and worsen the recession. Reducing public expenditure would remove crucial support from a struggling economy.
Conclusion ▼
Increasing expenditure on public projects is the most appropriate and likely counter-cyclical measure.
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