Consider the following actions by the Government: 1. Cutting the tax rates 2. Increasing the government spending 3. Abolishing the subsidies in the context of economic recession Which of the above actions can be considered a part of the “fiscal stimulus” package?

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YESPYQ · Accepted Answer

Correct answer: 1 and 2 only. A fiscal stimulus refers to government measures aimed at boosting economic activity during periods of recession or economic downturn. These measures typically involve either increasing government spending, reducing taxes, or both, to en- hance aggregate demand and mitigate the effects of a recession. Statement 1 is correct: Reducing tax rates increases dis- posable income for individuals and businesses, encouraging higher consumption and investment. This surge in spending can stimulate economic activity. Statement 2 is correct: Increasing government expenditures directly injects money into the economy, leading to increased de- mand for goods and services. This can result in job creation and heightened economic output. Statement 3 is incorrect : Abolishing subsidies can lead to higher prices for certain goods and services, potentially re- ducing consumer spending. During a recession, this could fur- ther suppress demand, counteracting stimulative efforts. 241

Consider the following actions by the Government:1. Cutting the tax rates2. Increasing the government spending3. Abolishing the subsidies in the context of economic recessionWhich of the above actions can be considered a part of the “fiscal stimulus” package?

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Consider the following actions by the Government:1. Cutting the tax rates2. Increasing the government spending3. Abolishing the subsidies in the context of economic recessionWhich of the above actions can be considered a part of the “fiscal stimulus” package?

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