Which among the following steps is most likely to be taken at the time of an economic recession?

1. 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.

2. B

   Increase in expenditure on public projects

   Increase expenditure on public projects. Classic Keynesian stimulus in a slump.

3. C

   Increase in tax rates accompanied by reduction of interest rate.

   Raise taxes and cut rates. Tax rise is contractionary.

4. 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.