Consider the following actions by the Government: 1. Cutting the tax rates 2. Increasing the government spending
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?
(a) 1 and 2 only (b) 2 only (c) 1 and 3 only (d) 1, 2 and 3
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(a) Abolishing the subsidies will lead to higher prices of goods and services which are subsidzed. A reduction in the tax rate would be a stimulus. While increase in government expenditure would increase the level of demand in the economy. Thus it is not good for providing stimulus in the economy.
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