ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Policy tools for stimulating the economy include interest rate cuts, government spending increases, and quantitative easing. Policymakers generally direct stimulus programs toward key economic sectors to take advantage of multiplier effects that they hope will indirectly increase private sector spending.

Detailed explanation-2: -In the short term, governments may focus on macroeconomic stabilization-for example, expanding spending or cutting taxes to stimulate an ailing economy, or slashing spending or raising taxes to combat rising inflation or to help reduce external vulnerabilities.

Detailed explanation-3: -Increasing the aggregate (total) consumption is the best way of promoting economic growth. Basically, augmented consumption triggers an increased demand for goods and services, which translates to a rise in production as well as investments as producers strive to satisfy the prevailing demand.

Detailed explanation-4: -During a recession, the government may lower tax rates or increase spending to encourage demand and spur economic activity. Conversely, to combat inflation, it may raise rates or cut spending to cool down the economy.