ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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.

Detailed explanation-2: -When the country is in a recession, the government will increase spending, reduce taxes, or do both to expand the economy. When we’re experiencing inflation, the government will decrease spending or increase taxes, or both.

Detailed explanation-3: -The correct answer is : C. The purchase of government securities by the Fed coupled with a tax reduction. Reason: Purchase of government securities in the market through open market operations by the central bank will infuse money in the economy.

Detailed explanation-4: -What Happens in a Recession? Economic output, employment, and consumer spending drop in a recession. Interest rates are also likely to decline as the central bank (such as the U.S. Federal Reserve Bank) cuts rates to support the economy.

Detailed explanation-5: -Expansionary monetary policy is most suitable when an economy is in recession. This policy, in theory, has the potential to support and return the economy of the nation to the potential GDP. It does this by boosting investment and spending by lowering the interest rates.