(a) Cut in tax rates accompanied by an increase in interest rate
(b) Increase in expenditure on public projects
(c) Increase in tax rates accompanied by reduction of interest rate
(d) Reduction of expenditure on public projects
Answer: b
Explanation:
Recession or involuntary unemployment comes into existence because of deficiency of aggregate demand brought about by fall in investment.
Equilibrium in national income and increase in employment can be achieved through:
- The government reducing income tax, which leads to an increase in consumption functions.
- Raising the rate of private investment by decreasing interest rates by the Central Bank and thus improving credit availability.
- Increasing Government expenditure (on public works as suggested by Keynes).
- Expansion of positive Net exports, i.e., expansion of exports by tax concessions.
Hence, option b is correct.
Read: Solved Economy PYQs With Explanation 2021 UPSC Prelims