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Q8 (IAS/2011) Economy › Government Finance & Budget › Fiscal deficit concepts Answer Verified

Which one of the following statements appropriately describes the “fiscal stimulus”?

Result
Your answer: —  ·  Correct: B
Explanation

A fiscal stimulus refers to the government's use of expansionary fiscal policy to kickstart economic growth, particularly during a recession or period of sluggish activity [4]. It involves an intense affirmative action by the government to boost aggregate demand through measures such as increasing government spending and reducing tax levels [4]. By lowering taxes, the government increases consumers' disposable income, while increased spending on infrastructure and services creates jobs and wages that are pumped back into the economy [5]. This policy aims to mitigate declines in aggregate demand and spur economic activity [4]. Unlike option 1, which focuses solely on manufacturing supply, or option 3, which focuses on agricultural loans, a fiscal stimulus is a broader macroeconomic tool used to influence the overall level of economic activity and gross domestic product [4].

Sources

  1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > Fiscal Stimulus > p. 117
  2. [4] https://www.congress.gov/crs_external_products/IF/HTML/IF11253.web.html
  3. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Fiscal Policy can be either expansionary or contractionary. > p. 154
  4. [5] https://www.investopedia.com/terms/e/expansionary_policy.asp
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SIMILAR QUESTIONS

CDS-II · 2013 · Q68 Relevance score: 0.48

Which of the following factors is/are responsible for recent rapid slowdown of Indian economy despite recovering from . the global financial crisis ? 1. The boost to demand given by monetary and fiscal stimulus following the crisis was large 2. Starting in 2011-12, corporate and infrastructure investment started slowing both as a result of investment bottlenecks as well as the tighter monetary policy Select the correct answer using the code given below :

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