Multiple Choice Questions on With reference to Fiscal policy which of the following can be considered as part of 39 countercyclic........... for UPSC Civil Services Examination (General Studies) Preparation

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Multiple Choice Questions

With reference to Fiscal policy which of the following can be considered as part of 39 countercyclic...........

Economic Affairs Public Finance and Debt Management
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    With reference to Fiscal policy, which of the following can be considered as part of 'countercyclical' policy approach

    1. Reducing spending during a recession
    2. Reducing spending during a boom period
    3. Cutting taxes during a boom period.

    Select the correct statement.

    1&2 only

    Incorrect Answer

    2 only

    Correct Answer

    1&3 only

    Incorrect Answer

    3 only

    Incorrect Answer
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    Explanation:
    • A 'procyclical fiscal policy' can be summarized simply as governments choosing to increase government spending and reduce taxes during an economic expansion, but reduce spending and increase taxes during a recession. 
    • A 'countercyclical' fiscal policy takes the opposite approach: reducing spending and raising taxes during a boom period, and increasing spending and cutting taxes during a recession.

    Hence only statement 2nd is correct.

    By: Shubham Tiwari
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