Q. “Fiscal Stimulus” is provided to different sectors of an economy to promote the growth. Which of the following measure (s) is/are constitutes fiscal stimulus?
1. Lowering interest rates
2. Tax rebates
3. Export subsidies
Select the correct answer using the code given below:
Answer: D
Notes:
A stimulus package is a number of incentives and tax rebates offered by a government to boost spending in a bid to pull a country out of a recession or to prevent an economic slowdown.
- A stimulus package can either be in the form of a monetary stimulus or a fiscal stimulus.
- A monetary stimulus involves cutting interest rates to stimulate the economy.
- When interest rates are cut, there is more incentive for people to borrow as the cost of borrowing is reduced.
- An increase in borrowing means there’ll be more money in circulation, less incentive to save, and more incentive to spend.
- Lowering interest rates could also weaken the exchange rate of a country, thereby leading to a boost in exports.
- When exports are increased, more money enters the economy, encouraging spending and stirring up the economy.
Source: TMH Ramesh Singh
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