Question

Q. Which of the following are counter-cyclical measures to overcome a recession.

Select the correct answer using the code below:

• A. 1 and 2 only
• B. 2 and 3 only
• C. 3 only
• D. 1, 2 and 3

Answer 1

The correct option is A 1 and 2 only

Explanation:

• Counter-cyclical policies are the steps taken by the government and other institutions that go against the direction of the economic or business cycle ie it tries to counter the boom or the recession phases of the economic cycle.
• In the case of the recession, the prime focus will be to improve the aggregate demand and hence bring the economy back on the growth path.
• For example, reducing taxes and increasing expenditure will help to create demand and produce an upswing in the economy.
• On the other hand, the rise in the interest rates will lead to an increase in the cost of credit by banks. This will make new investment decisions to be postponed and hence not suitable to counter the current recession.