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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.
Correct answer is option 'B'. Can you explain this answer?
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Which among the following steps is most likely to be taken at the time...
Economic Recession is a macro-economic term that refers a significant decline in the general economic activity, typically when there is two consecutive quarters of economic decline.
During recession various fiscal and monetary policies are undertaken. The central bank reduces the interest rates to near zero to increase the liquidity. So, option (a) is not correct.
The government increases massive spending; therefore option (b) is correct.
Increase in tax rates and reduction of public expenditure will decrease the liquidity and further restricts the economy of the region/country.
Therefore, (c) and (d) are not correct.
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Which among the following steps is most likely to be taken at the time...
During an economic recession, the government takes various steps to boost the economy. One such step is to increase expenditure on public projects. The following are the reasons why this step is most likely to be taken during an economic recession:

1. Boosting Aggregate Demand: During a recession, the aggregate demand in the economy falls, leading to a decrease in production and employment. By increasing expenditure on public projects, the government can boost aggregate demand in the economy. This is because public projects like infrastructure development, construction of roads and bridges, and building of public facilities like schools and hospitals require the purchase of goods and services, which in turn creates employment and income for people.

2. Multiplier Effect: Public expenditure has a multiplier effect on the economy. This means that every rupee spent by the government generates more than one rupee of income in the economy. This is because the money spent by the government is circulated in the economy, creating income and employment at various levels.

3. Creation of Capital Assets: Public expenditure on projects like infrastructure development creates capital assets that can be used in the future. This not only boosts economic growth in the short term but also contributes to long-term growth by increasing the productivity of the economy.

4. Crowding-In Effect: Increased public expenditure during a recession can also have a crowding-in effect on private investment. This is because public investment creates a positive environment for private investment, as it creates demand for goods and services, lowers the cost of production, and increases the availability of resources like transport, power, and communication.

Therefore, it can be concluded that during an economic recession, the government is most likely to increase expenditure on public projects to boost the economy.
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Passage 2After the end of World War II, a pervasive, but unfortunately fallacious, economic perspective took hold. Based on the United States successful emergence from the Depression, the idea that war was good for an economy became fashionable. However, linking the United States economic recovery with its entry into World War II is a prime example offlawed economic thinking.Supporters of the war benefits economy theory hold that a country at war is a country with a booming economy. Industry must produce weapons, supplies, food, and clothing for the troops. The increased production necessitates the hiring of more people, reducing unemployment. More employment means more money in the pockets of citizens, who are then likely to go out and spend that money, helping the retail sector of the economy. Retail shops experience an increase in business and may need to hire more workers, further reducing unemployment and adding to the economic momentum. While this scenario sounds good in theory, it does not accurately represent what truly happens in a war time economy.In reality, the government can fund a war in a combination of three ways. It can raise taxes, cut spending on other areas, or increase the national debt. Each of these strategies has a negative impact on the economy. An increase in taxes takes money out of an individuals hands, leading to a reduction in consumer spending.Clearly, there is no net benefit to the economy in that case. Cutting spending in other areas has its costs as well, even if they are not as obvious.Any reduction in government spending means the imposition of a greater burden on the benefactors of that government spending. Cutbacks in a particular program mean that the people who normally depend on that program now must spend more of their money to make up for the government cuts. This also takes money out of consumers hands and leaves the economy depressed. Of course, a government could go into debt during the war, but such a strategy simply means that at some point in the future, taxes must be increased or spending decreased. Plus, the interest on the debt must be paid as well.Q. Which of the following situations best mirrors the effect that cutting spending in government programs has, as detailed in the passage?

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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.Correct answer is option 'B'. Can you explain this answer?
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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.Correct answer is option 'B'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about 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.Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 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.Correct answer is option 'B'. Can you explain this answer?.
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