CA Foundation P4 · Chapter 7 · Question 13 of 15
During a deep recession, an appropriate fiscal policy would be to:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Increase government expenditure and reduce taxes
Explanation
Expansionary fiscal policy raises aggregate demand to restore output and employment. Cutting spending, raising taxes and aiming for a surplus are contractionary. The cash reserve ratio is a monetary policy instrument, not fiscal.
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