2024 · Q92
Consider the following statements:
- 1An additional spending by the Government of X is likely to have less impact on income than an additional transfer of X to households.
- 2An additional spending by the Government of X is likely to have less impact on income if it is not accompanied by an expansion in money supply.
Which of the statements given above is/are correct?
General KnowledgeIndian Economy
- A1 only
- B2 only
- CBoth 1 and 2
- DNeither 1 nor 2
Explanation
Additional government spending has a larger multiplier effect on income than an equivalent transfer to households, because transfers are partly saved while direct spending fully enters aggregate demand — statement 1 is false. If extra spending is not accompanied by monetary expansion, rising interest rates crowd out private investment, reducing its impact on income — statement 2 is true. Only statement 2 is correct. Hence option B is correct.