Correct answer: (b) Increase in expenditure on public projects
Explanation
- A
Cut in tax rates accompanied by increase in interest rate
Cut taxes and raise rates. Fiscal ease plus monetary tightness fight each other; rates up is not a recession pack.
- B
Increase in expenditure on public projects
Increase expenditure on public projects. Classic Keynesian stimulus in a slump.
- C
Increase in tax rates accompanied by reduction of interest rate.
Raise taxes and cut rates. Tax rise is contractionary.
- D
Reduction of expenditure on public projects
Cut public projects. That deepens a recession.
Summary. Official key is (b). In a recession the usual first fiscal move is more public spending (and often easier money). Raising rates or taxes, or cutting projects, is the wrong direction.
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