gs1medium

Consider the following actions by the Government :

  1. 1.Cutting the tax rates
  2. 2.Increasing the government spending
  3. 3.Abolishing the subsidies In the context of economic recession, which of the above actions can be considered a part of the "fiscal stimulus" package ?
  1. A.1 and 2 only
  2. B.2 only
  3. C.1 and 3 only
  4. D.1, 2 and 3
▶ Answer & Explanation

Correct answer: A. 1 and 2 only

Fiscal stimulus aims to boost aggregate demand during an economic slowdown. Cutting tax rates leaves more disposable income with individuals and businesses, encouraging spending and investment. Increasing government spending directly injects money into the economy, creating jobs and demand for goods and services. Abolishing subsidies, however, would likely reduce aggregate demand as it increases costs for consumers and businesses.

Source: UPSC gs1 2010

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