Question

Consider the following actions by the Government:

1. Cutting the tax rates 
2. Increasing the government spending
3. Abolishing the subsides

In the context of economic recession, which of the above actions can be considered a part of the "fiscal stimulus" package?

1. 1 and 2 only 
2. 2 only
3. 1 and 3 only
4. 1, 2 and 3

Answer 1

Correct Answer - Option 1 : 1 and 2 only 

The correct answer is 1 and 2 only. 

• The word fiscal refers to government finances, i.e., public expenditure or spending, taxation, and government debt.
• A stimulus is an attempt by policymakers to kickstart a sluggish economy through a package of measures.
• Fiscal stimulus may refer to either greater public spending or tax cuts. Hence, Statement 1 & 2 are correct.
• A fiscal stimulus is an important tool that policymakers can use to reduce the severity of recessions.
• The federal government provides fiscal stimulus when it increases spending, cuts taxes, or both. 
• A recession is a significant decline in economic activity lasting more than a few months, whose precise start and end dates are determined after the fact by the National Bureau of Economic Research. 

• The National Bureau of Economic Research ( NBER) is an American private nonprofit research organization committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.
• The National Bureau of Economic Research (NBER) was founded in 1920, largely in response to heated Progressive-era controversies over income distribution.
• It was founded by Malcolm Rorty, an executive at the American Telephone and Telegraph Company, and Nachum Stone, a socialist labor organizer with a Ph.D. in economics from Columbia University.