Question

In order to discourage any fall in Aggregate Demand, the Government of India may ------ the -----. (Choose the correct alternative to fill in the blanks)

• A. Decrease, repo rate
• B. Increase, reverse repo rate
• C. Decrease, government expenditure
• D. Decrease, tax rate

Hint:

Lower taxes increase disposable income, boosting Aggregate Demand and stimulating economic growth.

Answer 1

The Correct Option is D

To avert a decline in Aggregate Demand, the government can enact expansionary fiscal measures, including: 1. Reducing tax rates:
- Diminished taxes elevate disposable income, fostering increased consumption and investment, consequently augmenting Aggregate Demand. 2. Augmenting government expenditure:
- Enhanced public spending stimulates demand, generating employment and propelling economic growth. Conclusion: As a reduction in tax rates boosts Aggregate Demand, choice (D) is accurate.