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
Correct Answer
C
Increase in tax rates accompanied by reduction of interest rate
D
Reduction of expenditure on public projects
Explanation
This question tests the core concept of **Expansionary Fiscal Policy**, which aims to stimulate aggregate demand and boost economic activity during a recession. Increasing expenditure on public projects (Option B) is the most effective step as it creates immediate employment, puts money in the hands of the public, and generates a multiplier effect on growth. Options (a) and (c) are incorrect because they pair a stimulatory measure with a contractionary one (such as increasing interest rates or tax rates), which would counteract the goal of economic recovery by discouraging investment or reducing disposable income.
MacroeconomicsFiscal Policy & Economic CyclesEconomic recessionFiscal policyPublic projectsGovernment expenditureTax ratesInterest rates