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

A recession is characterized by a negative GDP growth rate in two successive quarters. Indicators include an economic slowdown, falling investments, and decreased output.

During a recession, tax revenues fall due to reduced earnings for firms and households. To stimulate the economy, both the government and the central bank should ideally follow expansionary fiscal and monetary policies, respectively, while carefully monitoring inflationary pressures.

Let's analyze the options:

• Option a: Cutting tax rates alongside increasing interest rates is counterproductive. Higher interest rates lead to a credit crunch, which is undesirable during a recession.
• Option b: Increasing expenditure on public projects is the most suitable step. This triggers a positive cycle of investment, leading to increased GDP (production of goods and services) and income, which in turn boosts demand.
• Option c: Increasing tax rates during a recession is undesirable as incomes are already falling.
• Option d: Reducing expenditure on public projects further dampens output and is therefore not a helpful measure.

Hence, (b) is the correct answer.