Match List-I with List-II:
| List-I | List-II | ||
|---|---|---|---|
| (A) | Proportional income tax | (I) | Helps sustain consumption |
| (B) | Raising government spending when investment falls | (II) | A built-in stabiliser in the private sector |
| (C) | Welfare payments during a slump | (III) | Makes disposable income less sensitive to fluctuations in GDP |
| (D) | Corporations maintaining dividends | (IV) | Deliberate action to stabilise the economy |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) - (III), (B) - (IV), (C) - (I), (D) - (II)
Some stabilisers work automatically; others need a deliberate decision by the government.
| List-I | List-II | Reason |
|---|---|---|
| (A) Proportional income tax | (III) Makes disposable income less sensitive to fluctuations in GDP | Part of every rise in GDP goes as tax, so it is an automatic stabiliser. |
| (B) Raising government spending when investment falls | (IV) Deliberate action to stabilise the economy | This is discretionary fiscal policy. |
| (C) Welfare payments during a slump | (I) Helps sustain consumption | People still get income in a slump, so consumption holds up. |
| (D) Corporations maintaining dividends | (II) A built-in stabiliser in the private sector | Firms keep paying dividends in the short run, so household income is steadier. |
NCERT (2026-27): “Box 5.1: Fiscal Policy … The proportional income tax, thus, acts as an automatic stabiliser – a shock absorber because it makes disposable income, and thus consumer spending, less sensitive to fluctuations in GDP. … This deliberate action to stabilise the economy is often referred to as discretionary fiscal policy to distinguish it from the inherent automatic stabilising properties of the fiscal system. …” “During boom years, when employment is high, tax receipts collected to finance such expenditure increase exerting a stabilising pressure on high consumption spending; conversely, during a slump, these welfare payments help sustain consumption. Further, even the private sector has built-in stabilisers. Corporations maintain their dividends in the face of a change in income in the short run and households try to maintain their previous living standards. …” |