Change set

Pick exam & year, then Go.

Question map
Not attempted Correct Incorrect ★ Bookmarked
Loading…
Q108 (IAS/2010) Economy › Government Finance & Budget › Fiscal deficit concepts Answer Verified

Consider the following actions by the Government: 1. Cutting the tax rates 2. Increasing the government spending 3. Abolishing the subsidies In the context of economic recession, which of the above actions can be considered a part of the 'fiscal stimulus' package?

Result
Your answer: —  ·  Correct: A
Explanation

Correct answer is option 1. Fiscal stimulus in a recession typically involves measures that boost aggregate demand—notably cutting taxes and increasing government spending—so as to put more money in private hands and raise G directly, a policy often called “pump-priming” or discretionary stimulus [2]. Both tax cuts and higher public expenditure expand demand and are standard elements of stimulus packages. By contrast, abolishing subsidies removes transfers or price support to consumers/producers, reducing real disposable income and government-supported demand; this is effectively contractionary and would not be part of a fiscal stimulus aimed at reviving demand.

Sources

  1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Fiscal Policy can be either expansionary or contractionary. > p. 154
  2. [2] https://www.cbpp.org/research/economy/fiscal-stimulus
How others answered
Each bar shows the % of students who chose that option. Green bar = correct answer, blue outline = your choice.
Community Performance
Out of everyone who attempted this question.
69%
got it right
✓ Thank you! We'll review this.

SIMILAR QUESTIONS

IAS · 2011 · Q10 Relevance score: 4.16

Consider the following actions which the Government can take:

  1. Devaluing the domestic currency.
  2. Reduction in the export subsidy.
  3. Adopting suitable policies which attract greater FDI and more funds from FIIs.

Which of the above action/actions can help in reducing the current account deficit?

IAS · 2015 · Q98 Relevance score: 2.59

There has been a persistent deficit budget year after year. Which of the following actions can be taken by the government to reduce the deficit? 1. Reducing revenue expenditure 2. Introducing new welfare schemes 3. Rationalizing subsidies 4. Expanding industries Select the correct answer using the code given below.

IAS · 2016 · Q3 Relevance score: 2.45

There has been a persistent deficit budget year after year. Which action/actions of the following can-be taken by the Government to reduce the deficit? 1. Reducing revenue expenditure 2. Introducing new welfare schemes 3. Rationalizing subsidies 4. Reducing import duty Select the correct answer using the code given below.

IAS · 2021 · Q33 Relevance score: -0.67

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