UPSC Prelims 2021 · Question 3 of 97
UPSC Prelims 2021 question on Recession Countermeasures
- ExamUPSC CSE
- Year2021
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicImportant Economic Concepts
- DifficultyEasy
- TypeDirect
Which among the following steps is most likely to be taken at the time of an economic recession?
Show answer
Answer: B. Increase in expenditure on public projects
Verdict
Correct answer → Option (b).
Analysis
Recession is a situation characterised by negative growth rate of GDP in two successive quarters. Indicators include slowdown in the economy, fall in investments and fall in output. During recession, governments adopt expansionary fiscal policy and central banks adopt expansionary monetary policy.
Statement by statement
Option (a) — INCORRECT: An increase in interest rates causes a credit crunch, which is not desirable during recession.
Option (b) — CORRECT: Increasing expenditure on public projects stimulates the economy. It triggers a virtuous cycle of investment → higher GDP → higher income → higher demand.
Option (c) — INCORRECT: Raising tax rates during recession is undesirable as incomes are already falling.
Option (d) — INCORRECT: Reducing public expenditure during recession further contracts output.