Consider the following actions by the government:

1. Cutting the tax rates
2. Increasing government spending
3. Abolishing the subsidies

In the context of an economic recession, which of the above actions can be considered a part of the ‘fiscal stimulus’ package?
a) 1 and 2 only
b) 2 only
c) 2 and 3 only
d) 1, 2 and 3

Ans- [ A]

Explanation– Recession occurs when there is significant drop in level of economic activity due to lack of demand. To tackle it, government has to make policy in such a way that more consumer spending occurs. Cutting the tax rates and increasing the government spending will revitalize the stagnant economy. Abolishing the subsidies will increase the cost of subsidized products which will further slow down the economy.