UPSC Prelims 2021·GS1·economy·basic concepts

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

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Last updated 8 Jul 2026, 4:39 pm IST
  1. ACut in tax rates accompanied by increase in interest rate
  2. BIncrease in expenditure on public projectsCorrect
  3. CIncrease in tax rates accompanied by reduction of interest rate
  4. DReduction of expenditure on public projects

Explanation

An economic recession is characterized by a significant decline in economic activity across the economy, typically visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. During a recession, there is often a lack of demand and high unemployment.

To combat a recession, governments typically implement expansionary fiscal policies to stimulate demand and create jobs. Increasing expenditure on public projects (like infrastructure development) is a direct form of expansionary fiscal policy. It injects money into the economy, creates employment opportunities, and boosts aggregate demand, thereby helping to lift the economy out of recession.

Options A and C involve contradictory policy mixes (e.g., cut in tax rates with increased interest rates, or increased tax rates which are contractionary during recession). Option D (Reduction of expenditure on public projects) would further contract the economy and worsen the recession.

Therefore, an increase in expenditure on public projects is the most appropriate and likely step to be taken during an economic recession.

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