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Home› UPSC CSE› Prelims GS Paper I› 2021 questions› Question 70

UPSC CSE Prelims

Subject: Economy Chapter: Fiscal Policy

2021 PYQ

Question 70

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

Choose one answer ACut in tax rates accompanied by increase in interest rate BIncrease in expenditure on public projects CIncrease in tax rates accompanied by reduction of interest rate DReduction of expenditure on public projects

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Correct answer: B

Correct Option: B (Increase in expenditure on public projects) Explanation: During recession, expansionary fiscal policy such as infrastructure and public-project spending raises aggregate demand, employment and investment. Option-wise Analysis: A. Incorrect-Tax cuts could stimulate, but an interest-rate increase works against recovery. B. Correct-public investment is a standard countercyclical fiscal stimulus. C. Incorrect-Raising taxes suppresses demand even if rates fall, giving a mixed contractionary signal. D. Incorrect-Cutting public projects would deepen the downturn.

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