Question

Q. Which of the following measures taken by any government in the wake of Covid induced slow down can be categorized as a counter-cyclical policy?

Select the correct answer using the code given below:

• A. 1 and 2 only
• B. 1 and 3 only
• C. 1, 2 and 4 only
• D. 1, 2, 3 and 4

Answer 1

The correct option is C 1, 2 and 4 only

Explanation:

• Counter-cyclical fiscal policy refers to the steps taken by the government that go against the direction of the economic or business cycle. In a recession or downturn, the government will raise spending and lower taxes to stimulate demand and move the economy forward. Here spending more by the government, by borrowing, increasing the overall demand by vulnerable sections of the economy, and spending on infrastructure projects, etc can be seen as countercyclical fiscal policy.
• On the other hand, during a boom in the economy, counter-cyclical fiscal policy aims at raising taxes and cutting public expenditure to control inflation and debt.