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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?
Verified Answer
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.
Most Upvoted Answer
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.
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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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?.
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?.
Solutions 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? in English & in Hindi are available as part of our courses for UPSC.
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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?, a detailed solution 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? has been provided alongside types of 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? theory, EduRev gives you an
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