ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -During recession, the total level of spending decreases. The government can fill the spending gap by using its power to tax and spend. If the government uses expansionary policy and reduces tax rates and increases its spending on goods and services, it will likely result in extra income and spending in 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: -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-4: -Tax cuts & Government Spending The most popular, or most recommended, policy for any country to dig itself out of recession is expansionary fiscal policy, or fiscal stimulus. This is usually a two-pronged approach – tax cuts and increased government spending.

Detailed explanation-5: -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.