UPSC Prelims 2011 · Question 48 of 100

UPSC Prelims 2011 question on Fiscal Stimulus

ExamUPSC CSE
Year2011
PaperGeneral Studies Paper I
SubjectIndian Economy
TopicEconomic Growth
DifficultyMedium
TypeDirect

Which one of the following statements appropriately describes the “fiscal stimulus”?

It is a massive investment by the Government in manufacturing sector to ensure the supply of goods to meet the demand surge caused by rapid economic growth
It is an intense affirmative action of the Government to boost economic activity in the country
It is Government’s intensive action on financial institutions to ensure disbursement of loans to agriculture and allied sectors to promote greater food production and contain food inflation
It is an extreme affirmative action by the Government to pursue its policy of financial inclusion

Show answer

Answer: B. It is an intense affirmative action of the Government to boost economic activity in the country

Verdict

Correct Answer: It is an intense affirmative action of the Government to boost economic activity in the country

Analysis

Fiscal stimulus means deliberate government action to revive or boost economic activity, especially during slowdown or recession.

Fiscal stimulus is a policy measure where the government increases spending, reduces taxes, or provides financial support to increase demand in the economy.

The main aim is to encourage consumption, investment, production and employment. When private demand is weak, the government steps in to support economic activity.

Statement by statement

It is not limited only to investment in manufacturing.

It is not the same as forcing banks to give loans; that is closer to monetary or credit policy.

It is not the same as financial inclusion, which means expanding access to banking and financial services.

Extra UPSC info

Fiscal stimulus is part of fiscal policy, handled by the government.
Common tools include public expenditure, tax cuts, subsidies and transfer payments.
It is linked with Keynesian economics, which supports government intervention during downturns.
It may increase the fiscal deficit if spending rises without matching revenue.
The multiplier effect means government spending can generate a larger increase in income and demand.

How to crack it

Fiscal stimulus is a proactive government measure to boost demand and revive economic activity through spending, tax relief or transfers.