Which among the following steps is most likely to be taken at the time of an economic recession?
Which among the following steps is most likely to be taken at the time of an economic recession?
Cut in tax rates accompanied by increase in interest rate
Increase in expenditure on public projects
Increase in tax rates accompanied by reduction of interest rate
Reduction of expenditure on public projects
Solution
During an economic recession, governments use expansionary fiscal policy. Increasing expenditure on public projects boosts aggregate demand, creates jobs and stimulates economic activity (Keynesian approach).