Q. “Fiscal Stimulus” is provided to different sectors of an economy to promote the growth. Which of the following measure (s) is/are constitutes fiscal stimulus?
1. Lowering interest rates
2. Tax rebates
3. Export subsidies
Select the correct answer using the code given below:

[A] 1 only

[B] 1 and 2 only

[C] 2 and 3 only

[D] 1, 2 and 3

Answer: D

A stimulus package is a number of incentives and tax rebates offered by a government to boost spending in a bid to pull a country out of a recession or to prevent an economic slowdown.  

  • A stimulus package can either be in the form of a monetary stimulus or a fiscal stimulus.  
  • A monetary stimulus involves cutting interest rates to stimulate the economy.  
  • When interest rates are cut, there is more incentive for people to borrow as the cost of borrowing is reduced.  
  • An increase in borrowing means there’ll be more money in circulation, less incentive to save, and more incentive to spend.  
  • Lowering interest rates could also weaken the exchange rate of a country, thereby leading to a boost in exports.  
  • When exports are increased, more money enters the economy, encouraging spending and stirring up the economy. 

Source: TMH Ramesh Singh