CBSE 2025, Set 2

Question

Read the following text carefully:

In an economy, a significant reduction in Aggregate demand raised concerns about future growth prospects of the country. This economic downturn underscores the urgent need for strategic measures to boost confidence of households and stimulate economic activities.

Based on the above text and common understanding, explain the measures which the government may take to stabilise the indicated situation.

Edvaya · Accepted Answer

The correct answer is Subjective. The highlighted issue is **deflation** (or deficient demand). To control deflation, the government may take the following fiscal measures: 1. **Decrease the tax rates:** This will increase the disposable income (purchasing power) in the hands of the general public. Consequently, it may lead to a rise in Aggregate Demand, thereby correcting the situation of deflation. 2. **Increase the public expenditure:** The government stepping up its spending on infrastructure and public works will increase the level of income and employment in the economy. Consequently, it may lead to a rise in Aggregate Demand, thereby correcting the situation of deflation.

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Economics > Introductory Macroeconomics > Determination Of Income Employment

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