Question

'India's GDP contracted 23.9% in the April-June quarter of 2020-21 as compared to same period of 2019-20, suggesting that the lockdown has hit the economy hard'.

State and discuss any two fiscal measures that may be taken by the Government of India to correct the situation indicated in the above news report.

Answer 1

The situation suggests that Aggregate Demand is less than Aggregate Supply. Following two fiscal measures may be taken to control it: 

a. Decrease in Taxes - To curb the situation, the government may decrease the taxes. This may increase the purchasing power in the hands of the general public. This may increase the Aggregate Demand in the economy to bring it equal to the Aggregate Supply. 

b. Increase in Government Expenditure - The government may also increase its expenditure. This may increase the purchasing power in the hands of the general public which in turn may increase the Aggregate Demand in the economy to bring it equal to the Aggregate Supply.