Read the following statements : Assertion (A) and Reason (R). Choose the correct option from those given below :
Assertion (A) : Government can control the situation of deficient demand through its taxation policy.
Reason (R) : Reduction in tax rates by the government leads to increase in the disposable income of the people.
Read the following statements : Assertion (A) and Reason (R). Choose the correct option from those given below :
Assertion (A) : Government can control the situation of deficient demand through its taxation policy.
Reason (R) : Reduction in tax rates by the government leads to increase in the disposable income of the people.
Show Hint
- Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
- Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
- Assertion (A) is true, but Reason (R) is false.
- Assertion (A) is false, but Reason (R) is true.
The Correct Option is A
Solution and Explanation
Deficient demand means AD is less than the full employment output. The government can raise AD by lowering taxes or raising spending.
Taxation is a fiscal tool, so Assertion (A) is true.
Step 2: Test the Reason:
When tax rates fall, people pay less tax and keep more of their income.
So disposable income rises. Reason (R) is true.
Step 3: Check if R explains A:
With more disposable income, households spend more on consumption. Higher consumption raises AD.
So the tax cut works through a rise in disposable income. R is the correct explanation of A.
Step 4: Test the options:
(B) says R is not the explanation. We showed that it is.
(C) says R is false. It is true.
(D) says A is false. It is true.
So (A) is correct.
Final Answer:
Both A and R are true and R explains A. Option (A).
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