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

Cut in tax rates accompanied by increase in interest rate:

• Cutting tax rates is a fiscal policy aimed at increasing disposable income for consumers and investment capacity for businesses, which can stimulate economic growth.
• However, increasing interest rates is a monetary policy tool typically used to combat inflation or cool down an overheating economy, not actions typically taken during a recession when the goal is often to encourage borrowing and spending.

Increase in expenditure on public projects:

• This is a classic fiscal policy approach used to combat recessions. By increasing expenditure on public projects, the government injects money into the economy, creating jobs, and stimulating demand through increased spending.
• This approach is based on Keynesian economic theory, which advocates for increased government expenditures and lower taxes to stimulate demand and pull the economy out of a recession.

Increase in tax rates accompanied by reduction of interest rate:

• Increasing tax rates during a recession would likely reduce disposable income for consumers and investment for businesses, potentially deepening the recession.
• Reduction of interest rates is a common monetary policy measure to stimulate economic activity by making borrowing cheaper, encouraging spending and investment.
• The combination of these two policies sends mixed signals and could be counterproductive, with the tax increase potentially offsetting the stimulative effect of lower interest rates.

Reduction of expenditure on public projects:

• Reducing government expenditure on public projects during a recession would likely lead to a decrease in overall demand in the economy.
• This is because such spending cuts reduce the amount of government-induced economic activity, potentially worsening the recession.

Source: https://compass.rauias.com/current-affairs/k-shaped-economic-recovery-in-india/